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Naira devaluation unlikely to depress stocks further – Operators

By on November 29, 2014

Some capital market operators have said the devaluation of the naira by the Central Bank of Nigeria may not depress the equities market, which has endured a turbulent year, further.

According them, the market has already declined considerably in reaction to falling oil prices and speculation that the naira will be devalued, hence there is unlikely to be a negative impact in the short-term.

On Tuesday, when the move was announced by the CBN Governor, Mr. Godwin Amiefule, the market capitalisation of the listed equities rose by N80bn or 0.71. This happened a day after the market cap had declined by N57bn.

On Wednesday, the equities value rose further by N154bn or 1.4 per cent to N11.417tn.

“The market may have preempted the worst case scenario that the naira will be devalued and hence declined considerably, losing a lot of points so far,” the Managing Director, Highcap Securities Limited, Mr. David Adonri, said.

He explained that the gains recorded on Tuesday and Wednesday showed that the devaluation had not impacted the stock market more negatively “because the market has been proactively reacting since the price of crude oil started declining”.

It is not unlikely, therefore, that the devaluation of the naira may not materially elicit further reaction from the market, at least in the short term, he added.

He, however, explained that the situation might change if the current stabilisation measures put in place by the CBN failed and the authorities applied stiffer measures.

The Chief Executive Officer, Enterprise Stockbrokers, Mr. Rotimi Fakayejo, expressed the view that the devaluation would be positive for the capital market.

This, he explained, was because it would attract foreign funds into the market as the equities were currently cheap and the dollar would give more naira.

He added that the move might also ease the impact of the political uncertainty in the country.

“The way it has been, there is likelihood that this (naira devaluation) would override the political uncertainty,” he said stressing that many foreign investors knew that Nigeria would overcome the current situation.

“We have been in situations that are more difficult than this. Also, by the time the party primaries have taken place, there is going to be more stability in the market.”

Fakayejo also said the gains of the last two day could be linked to the move.

“When you look at the kind of volume it is easy to infer that. It had been speculated that the naira was going to be devalued and the immediate impact of that is the attraction of funds into the market and that has already started happening,” he said.

The Chief Executive Officer, Financial Derivatives Company Limited, Mr. Bismarck Rewane, who said the devaluation of the naira was the right move because the country’s revenue was down, explained that before the devaluation, foreign investors had been selling their shares to take their money out, “but now that the value has been established that will stop.”

He said the devaluation would help stop investors that were trying to pull out of the country from doing so.

 

[Punch]