Nigeria’s sovereign Eurobonds and stocks have sold off in the half year (H1) period that ended on Friday June 29, amid market correction, political uncertainties and investor concerns over a strengthening dollar and rising U.S. Treasury rates.
The status of Africa’s largest economy as the 3rd best performing market in the world in 2017 has done little to spare it, as traders’ appetite for higher yields wanes and they rush to cut exposure to the riskiest markets.
The only U.S. exchange traded fund solely tracking Nigerian equities, the Global X MSCI Nigeria ETF, has shed 25 percent of its market capitalization this quarter. The fund has not seen any inflows since January 24 and outflows since then have totalled $25million, according to Bloomberg data.
“So, in the first six months of the year, market went up in just two months – January and June. That of course revealed that the market reacted to the level of uncertainty around the world, the Nigerian Policy uncertainties, budget was just passed, the response of the government to monetary authority and fiscal authorities, international market, uncertainty surrounding the trade war between the US and China, sort of local factors and global issues,” Ayo Akinwunmi, Head of Research at FSDH Merchant Bank said.
There has been a Technical correction to the Nigerian equities market that has seen the Nigerian Stock Exchange All Share Index shed 15 percent since its peak earlier in January.
“Going forward, the outlook is not so favourable in the Nigeria equities market due to the announcement of two additional increases of interest rates this year in the last Federal Open Market Committee meeting (US Fed) and the political risk in the country as the general elections build up,” Abdulrauf Bello, investment research analyst at WSTC Securities Ltd explained.
BusinessDay half year sectoral analysis of the Nigerian equities market showed the Oil and Gas, and the Consumer goods sector struggling as they both fell by 2.2 percent and 4.9 percent respectively. Forte Oil, Total, Honeywell and Flour Mills were amongst the biggest losers in the first 6 months of the year in the respective sectors.
Nigerian Eurobond yields are rising more sharply than the emerging-market average.
Rates on dollar notes issued by African governments have climbed to 7.6 percent, around 200 basis points above where they were in January, and are now at two-year highs according to Standard Bank Group Ltd. Nigeria has seen average Eurobond yields climb above 8 percent, despite rising crude prices.
Global money managers have also sold local-currency bonds.
The AFMI Bloomberg African Bond Index, which includes Botswana, Egypt, Ghana, Kenya, Namibia, Nigeria, South Africa and Zambia, has lost 12 percent in dollar terms in the second quarter.
Meanwhile, the Naira, which weaken against the dollar by 53 percent from N199 in 2016 to N305 in 2018 using the central bank official rate, after its devaluation has remained relatively stable.
Fitch rating agency cited that ‘’Nigerian banks’ ability to access foreign currency has improved considerably since the Central Bank of Nigeria (CBN), introduced a foreign exchange window at the end of April aimed at investors and exporters (I&E).
Also the CBN has on various occasions this year, intervened by releasing Foreign Exchange to Bureaux-de-Change (BDCs) operators in an effort to increase access to foreign exchange by small end-users, and bridge the supply gap.
Although, the difference in exchange rates is still an issue as this funds hinders the flow of transaction in the economy as investors would prefer the country to have a single currency according to Rick Harrell a Sovereign Analyst.
