Naira Gains Lift Against Dollar After Buhari’s Victory

Posted by African Examiner Business News, Latest Headlines Friday, April 3rd, 2015

As Nigerian stocks and bonds surged after Muhammadu Buhari won last weekend’s presidential election, one asset barely budged: the naira.

The Nigerian currency has traded in a range of 198 to 200 per dollar since March 3, and remained anchored even as stocks jumped the most in five years and bond yields plunged to four-month lows. The currency faces the prospect of a sell-off when the central bank of Africa’s biggest oil producer removes trading restrictions imposed last year to reduce volatility. The question for investors wanting to get back into Nigerian assets is when that will happen.

“If you buy local bonds now you have to factor in how much the currency will move,” Claudia Calich, a money manager at M&G Ltd. in London, which oversees about $1 billion of emerging-market assets, said by phone on Wednesday. “It’s a tricky proposition.”

The naira has slumped 18 percent against the dollar as oil prices collapsed by almost half since June, prompting the Abuja-based regulator to lower banks’ trading limits and introduce a new dealing system in February that prevents lenders from buying dollars on the interbank market without matching orders from customers needing to import goods. The currency was little changed at 199.05 per dollar as of 11:06 a.m. in Lagos.

‘Big Challenge’

The central bank also sold dollars to support the naira, cutting foreign-exchange reserves to $29.8 billion, the lowest in a decade, according to HSBC Holdings Plc. Those measures have left the currency overvalued, according to investors including M&G, BlackRock Inc. and Investec Asset Management.

“One of the first big challenges the new government’s going to have to face is what on earth to do with the naira,” Samuel Vecht, who oversees $2.7 billion in five emerging-frontier-market funds at BlackRock, said by phone from London on Wednesday. “Steps have to be taken to ensure reserves don’t keep falling.”

Buhari’s win over President Goodluck Jonathan marks Nigeria’s first democratic transition of power from one party to another since independence from Britain in 1960. A former military ruler from the 1980s who lost the three previous elections, Buhari, 72, has pledged to clamp down on corruption, boost growth and create at least 1 million jobs a year. He won 52.4 percent of votes cast, according to tallies by the electoral authorities.

Nigerian assets mostly soared on Wednesday as Jonathan’s concession to Buhari, who will be sworn in on May 29, suggested the transition will be smooth. Stocks climbed 8.3 percent, the most among 93 global primary indexes tracked by Bloomberg. They gained another 3.4 percent on Thursday, reversing losses for the year, having been down 20 percent by Feb. 13.

Yields on Nigeria’s $500 million of Eurobonds due 2023 fell 19 basis points to 6.02 percent on Wednesday, the lowest since Dec. 8, and rates on benchmark naira bonds dropped 118 basis points to 13.81 percent, also the lowest since Dec. 8.

Bloomsberg