adminLast month’s currency devaluation in Nigeria is bringing foreign investors back to the nation’s stock market.
Overseas investment flows have jumped over the past month after incoming President Bola Tinubu’s administration allowed the naira to weaken 40 percent, according to data from the Nigerian Exchange in Lagos.
While the devaluation initially reset the foreign-currency price of the benchmark index lower, stock gains fueled by the flows have mitigated that impact — leading to a 7,5 percent rebound over the past two weeks.
Investors will take heart from history that shows currency devaluations, while causing short-term pain, boost stock values and investment flows over the long term. The world’s best-performing stock market over the past year is Argentina’s, up 101 percent in dollar terms on the back of a 51 percent decline in the peso.
Not far behind is Turkey, up 74 percent off a 34 percent slump in the lira. The stocks gauge of Lebanon, which has seen the world’s worst currency losses, is up 20 percent in dollar terms over the period. In Egypt, stocks are up 20 percent after the currency fell 39 percent.
“Foreign investors are coming now because they believe they are taking a position on the future,” said Adetilewa Adebajo, chief executive of Lagos-based CFG Advisory. If the government comes out with a good budget, oil prices stabilise, crude production goes up, foreign exchange becomes more available, those will be good signals for foreign-investor participation and the positive market movement will be sustained.”
Nigerian stocks are already one of the world’s best performers in local-currency terms. Though Tinubu wasn’t the markets’ most favorite candidate at the February hustings, his administration has surprised investors with the intent and execution of a range of economic reforms. –Bloomberg
Online Reporter