Nigerian stocks hit a 7-week low while the country’s shortest tenor bond yield spiked 10 basis point on Thursday as foreign investors continued to sell off frontier assets, dragging its naira currency down to new intraday low.
Africa’s second biggest share index shed 2.25 percent in volatile trades to 39,373 points at 1145 GMT, dragged down by heavyweight Dangote Cement and the banking sector. The index gained 47 percent last year.
The naira, which has lost more than 3 percent of its value this year, fell to 165.75 against the U.S. currency, as offshore investors sold bonds and stocks, part of a widespread pullback after the U.S. Federal Reserve began to reduce its stimulus, which had kept global markets awash with cash.
“Sentiments around whether the central bank will continue to support the currency or devalue it, is driving markets,” one dealer told Reuters, adding that the naira has fallen further than the market expected.
Although dealers were not concerned by Nigerian President Goodluck Jonathan’s sacking of four government ministers on Wednesday, political instability is often a worry for investors, especially as wasteful government spending tends to spike ahead of elections.
“I think the picture was arguable not good before those ministers were sacked… but we know about the selling taking place primarily driven by foreign investors which already adds to a picture that is not looking very good,” said Alan Cameron, London-based economist for Nigerian stockbroker CSL.
Nigeria’s central bank has continued to intervene in the interbank market to shore up the value of the naira, selling an undisclosed amount to lenders at various intervals to stabilise the currency from falling beyond the 160 mark.
But the interventions and its twice-weekly forex auctions have cost it around 8 percent of its hard currency reserves, which is now down year-on-year to $42.4 billion by February 7.
The yield on the 2015 bond, which is also listed in the JP Morgan emerging government bond index, rose to 13.67 percent, against 13.61 percent the previous day.
Another dealer said he expects the central bank governor, whose term expires in three months, to continue to use the country’s foreign exchange reserves to defend the currency till he departs.