First, it was the oil price rally that did not benefit Africa’s largest oil producer, and now, it is a rally in emerging market stocks and currencies that look set to elude the country.
With global inflation slowing and central banks warming up to a slowdown in interest rate hikes, emerging market currencies and stocks have benefitted this year but a lack of reforms in Nigeria is seen scuttling the country’s chances of playing a role in the expected rally in developing assets.
MSCI Inc.’s emerging-market currency benchmark soared to the highest since last April on Thursday, after Jerome Powell, the US Fed chairman, hinted that the Fed may have only a few more interest-rate hikes to go following the considerable progress made in taming inflation.
A similar gauge of developing-economy equities also jumped, bringing its year-to-date gain to 10 percent.
Nigerian stocks and the naira currency are, however, playing no part in the rally. Long-standing reforms around the currency have blocked investors, who have been bullish on emerging markets with the end of the US tightening getting closer, China reopening and a softer slowdown in Europe.
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The Nigeria All Share Index has gained 5.78 percent since January, about half the return for developing-economy equities in the same period.
Emerging market currencies have also gained due to improved investment inflows.
The South African rand, which is often seen as a proxy for risk sentiment, jumped more than two percent to lead gains as 19 of the 23 developing currencies tracked by Bloomberg rose last week.
The Mexican peso climbed more than one percent, flirting with the 2023 high reached in mid-January.
Back in Nigeria, the naira has been stable but that has more to do with an acute naira scarcity than improved inflow of the dollars. The naira closed at N461.50 per dollar on Friday at the Investors and Exporters window, exactly where it opened on the first day of the week.
“Nigeria has deeper problems that will make it hard for its currency or stock market to benefit from foreign investor interest in emerging markets,” a portfolio manager based in South Africa said.
“The currency reforms are still dragging and until that changes, foreign investors will not bring their money in,” the portfolio manager who said the impact of a recent Moody’s downgrade on Nigeria’s credit would have been worse if foreign investors were still largely invested in the country.