Before his suspension last week as the governor of Central Bank of Nigeria (CBN), Sanusi Lamido Sanusi was a man every participant in Nigeria’s financial market respected.
Throughout the time he occupied the mantle of leadership at the apex bank, investors (local and foreign) followed, analysed every bit of his comments, polices, action – as a guide to remain active buyers or sellers of Nigerian assets.
In the equities market for instance, foreign investors still account for over 50 percent of the deals and their expression of surprise on Sanusi’s suspension speaks volume – questioning the possibility of their next line of decision.
If not for anything, investors feared the impact of his suspension as they emphasised that Sanusi demonstrated patriotism to ensure that Nigerian economy was insulated against external shock with the price and exchange rates stability achieved by some of his policies.
The attractive yield on Nigeria’s fixed income instruments and the stable exchange rate in the face of risks to fiscal sustainability have been serving as attractions to foreign portfolio and direct investors.
Considering his suspension, which recently shook the market, the question market analysts now ask is whether investors – particularly foreigners – will continue to see Nigerian market as a place to berth.
The impact of Sanusi’s suspension last week was immediately felt by the Nigerian financial market as investors reacted swiftly to the news. Following the announcement, the naira came under immense pressure, depreciating to N169 a dollar, down from N164 the previous day, thus resulting in a temporary shutdown of the market to douse the pressure.
The fixed income market did not open for trading. The mood in the equities market was bearish, characterised by negative sentiments and selling pressure from investors.
While many schools of thought foresee foreign investors selling off their assets in the near future as they await further clarity on the policies of the newly appointed acting governor, others say most investors they spoke with over the past few months have prepared their minds for this already.
Samir Gadio, emerging market strategist, Standard Bank, who believes that the disruptive move indicates that the CBN as de facto lost much of its independence, noted that “foreign investors are likely to be active sellers of Nigerian assets in coming days, subject to market liquidity constraints.”
Market analysts at Afrinvest Securities Limited noted that the uncertainty surrounding policy direction and political risk in the economy brought on by the foregoing was likely to spur further capital flight to safer regions or safer asset classes.
“With Foreign Portfolio Investor’s (FPI) constituting 50 percent of the Nigerian stock market, any significant amount of capital flight is likely to have weighty consequences on the market. Since this development, the NSE ASI has lost a total of 2.8 percent, due to selling pressures emanating from foreign and local market players reacting to the news. The true impact of this development is however yet to unravel as the news continues to filter across markets and participants,” Afrinvest Securities analysts noted.
These analysts further noted that: “The particular significance of FPI’s in the economy will be revealed in the days ahead as investors scramble to safety. Blue-chip stocks with significantly diversified foreign interest will be the most likely culprits of this capital flight. While we reiterate caution as canvassed by Sarah Alade while emphasising the CBN’s commitment to stability, we anticipate the government will take further steps to stem the consequences of this panic herding trend.”
“We do not believe anyone really expects the challenges on the fiscal side, which are the genesis of the entire saga that has played out over the last few months will suddenly disappear or improve materially in any way before next year’s elections. We believe that risk may be offset by the news which followed the suspension, that the current CEO of Zenith Bank, Godwin Emefiele, has been nominated by the President for the CBN governorship when Sanusi’s term expires June 1. We cannot see a scenario unfolding in which the MPC under Emefiele turns out to be even more hawkish than it has been under Sanusi,” said Olubunmi Asaolu, head, equity research, FBN Capital Limited.
Asaolu, who confirmed that the fallout from the decision by President Goodluck Jonathan to suspend the CBN governor last week was felt the most by the banks, said the banks might be reaching a watershed after months of uncertainty as to how the goings-on at the CBN may impact their outlook for 2014 and beyond.
“The NSE Banking 10 index fell 4.45 percent compared with the All Share Index’s 1.47 percent loss. A very strong year in 2012, when the banks recorded a significant expansion in their Return-on Average Equity (ROAE) now seems a distant past: after a challenging 2011, when the average ROAE for our universe came in at just 3.6 percent, our group of banks delivered an impressive 18.5 percent ROAE in 2012. We expect them to report a decline in 2013E to 17.3 percent, and a further decline in 2014E to around 16 percent,” the analysts stated.
According to Asaolu, “the only justification to our mind behind the sell-off could be the nature (shock) in which the news broke and fears that the risk that the naira may slide will grow with Sanusi off the scene. We would still recommend investors hold off just a little while longer to allow the dust to settle a little before building up or adding to current positions.”
“Investment decisions are influenced largely by regulatory pellucidity and relatively stable macro-economic environment of which the Nigerian economy has enjoyed over the last couple of months, particularly if you priced in some of the policies adopted by CBN under the leadership of the suspended governor,” Sewa Wusu, market analyst at Sterling Capital, said.
“An affront on CBN autonomy and lack of clarity on Emefele’s economic policy orientation may be the reasons for financial market instability with possible exit of some foreign portfolio investors, depletion of Nigeria’s foreign reserve, pressure on naira exchange rate and increase in fixed income yield in the next couple of days and weeks,” said Johnson Chukwu, managing director, Cowry Asset Management Limited.
Though, the stock market which was awash with activities of the bears resumed this week on a positive note by 1.07 percent, but analysts are still watching to see the possibility of this trend continuing, going by the perception of other market analysts across the globe.
For instance, Razia Khan, head of Africa research, Standard Chartered, said the nature of Sanusi’s suspension came as a significant shock to foreign portfolio investors, “whose willingness to invest in Nigeria was very much influenced by the transparency and anti-inflation credibility associated with his (Sanusi) policies.” She added: “This will be a significant negative for the Nigerian naira and Nigerian financial markets.”
Yvonne Mhango, Africa analyst at Rencap, had noted that Sanusi’s suspension raised concern among investors about the ability to sustain the naira at present levels, saying “we will see more pressure on the currency between now and June, and more weakness than we had anticipated prior to this news.”
By: Iheanyi Nwachukwu
