Nigeria's Stocks Drop To 3-month Low As Naira Value Continues Free Fall

 

(Reuters) – Nigerian stocks fell to a three-month low and the naira hit a new record low on the parallel market on Wednesday, as investors who were worried about a shortage of dollars on the currency market sold shares, traders said.

 

Nigeria's stock market, which has the second-biggest weighting after Kuwait on the MSCI frontier market index, dropped for the sixth consecutive day as investors pulled out of equities to short-dated Treasury bills in search of yield.

 

Investors had hoped for a sustained rally after smooth elections in March. But markets have taken a hit from worries over the continued slide in the naira and the impact of persistently low oil prices on government finances.

 

"We believe the uncertainties within the forex market may have triggered further sell-offs by foreign portfolio investors," said Ayodeji Ebo, head of research at Afrinvest.

 

"The persistent pressure and increased (dollar) demand suggest a devaluation of the naira is imminent," he added.

 

The central bank, worried about rising inflation, has said it is in no mood to devalue the naira again, after it tightened access to hard currency for the import of a wide range of goods.

 

Since the central bank measures, the naira has weakened steadily on the parallel market, hitting a new record low of 233.50 to the dollar on Wednesday.

 

On the interbank market, it traded near the central bank's pegged rate of 196.95 naira. Investors questioned how long the bank's rate could hold there, when the currency was trading further and further away on the parallel market.

 

DOLLAR SHORTAGE

 

People were buying dollars to protect themselves against further naira weakness, said Aminu Gwadabe, president of Nigeria's Bureau de Change association.

 

Analysts say naira weakness would hurt consumer good firms who rely on imports of raw materials. Ebo said investors had priced in lower profits as a result.

 

The all-share index shed 1.19 percent on Wednesday, 10.4 percent lower than its 2015 peak, which it hit on April 2 after Muhammadu Buhari won a closely fought presidential election.

 

But Sub-Saharan Africa's second biggest stock market has drifted lower since as investors wait for policy direction on issues such as the naira and petroleum investment.

 

The index of Nigeria's top five oil stocks declined 2.65 percent on Wednesday, weighing on the all-share index. The top two decliners were Oando and UBA, each down more than 5.5 percent.

 

The most liquid 5-year bond yield rose to 15.01 percent on Wednesday, up from 14.20 percent two weeks ago, when the central bank introduced new rules and close to its pre-election quote of 15.5 percent in March. (Editing by Andrew Heavens)