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Strong dollar threat to Nigerian capital market – NSE

By on January 16, 2015

The Nigerian Stock Exchange on Wednesday warned that the growing strength of the United States dollar was a threat to the capital market as it was capable of encouraging foreign portfolio investment outflow.

The Chief Executive Officer, NSE, Mr. Oscar Onyema, said this in Lagos during the Exchange’s 2014 market recap and outlook for 2015.

A report by CNNMoney on Tuesday had projected that the dollar could be equal to the euro by 2016, noting that the resurgent US economy had strengthened the dollar significantly in recent months, against almost every other currency.

And the NSE CEO, who observed that the rising dollar led to foreign portfolio reversals, which contributed to the poor performance of the key market indicators in 2014, said it remained a threat.

He said, “Nigeria’s 2015 macroeconomic performance is expected to be influenced by a number of variables, including crude oil prices, foreign exchange movements, national security, global financial markets, fiscal and monetary policies as well as the outcome of the 2015 elections.

“Post-elections, we anticipate elimination of some of the uncertainties highlighted above, may lead to stability in the equities market. However, the strengthening dollar may continue to precipitate foreign portfolio investment reversals, which remains a real threat to the Nigerian capital market.”

Onyema was, however, optimistic about the performance of the Exchange in 2015 based on the projections for the country and initiatives by the Exchange.

According to him, despite challenges such as the Ebola epidemic, increasing fiscal vulnerabilities and a deteriorating security situation in some sub-Saharan African nations, growth is expected to pick up in 2015 to 5.8 per cent from 5.1 per cent in 2014.

This, he said, was predicated on an expected boost in the demand from infrastructure projects, the expansion of productive capacity, particularly in extractive activities and electricity production, sustained growth in the services sector and the likelihood of a rebound in agricultural production.

He explained that although economic growth projection for 2015 would be greatly impacted by the challenges mentioned earlier, it was expected that “as time progresses, and as uncertainty is steadily reduced across all the risk categories that negative sentiment in the market will begin to subside with volatility slowing in the second half of the year, strengthening potential for a market rebound.”

Onyema assured market participants that despite the market’s sharp downturn in 2014, it was not all “doom and gloom” for 2015.

He said, “Although many expect volatility through the first half of the year, some stock prices are at their lowest since the May 2013 sell-off; some are even below book value presenting domestic investors with no currency risk and opportunity for cautious long-term investments in the market.

“We expect that as the year progresses, underpinned by successful elections with no or little levels of violence, a tighter grip on the security situation in North-Eastern Nigeria, and more certain micro economic outlook for oil prices, interest rates and the naira, the market’s attractiveness will improve rather significantly.”

Stressing that the Exchange was committed to initiatives that would position the bourse as an attractive listing and investment destination, he said in 2015, it would focus on providing a viable platform to support the financing and sustainable development of the real economy.

 

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