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Naira Appreciate To 315.95/dollar As Foreign Investors Takes Advantage by Benikuuse(m): 11:12am On Aug 25, 2016 |
By Peter Egwuatu, with agency
reports
Naira, yesterday, appreciated by 3.52
per cent to close at N315.93 to a
dollar at the interbank market,
prompting calls for foreign investors
to take advantage of the
appreciation.
However, the naira suffered a loss in
value as it depreciated at the
parallel market to trade at N402 per
dollar, weaker than N397 it traded
at its previous session as dollar
shortages gripped the official
market. The naira, which hit fresh
record low since the central bank
floated the currency on the official
inter-bank market in June, first
touched N400 on the black market
this month.
On the inter-bank market yesterday,
no trade was posted until three
minutes before the end of the
session, when the central bank
which has been reducing its dollar
sales, intervened, traders said. Only
three deals worth $0.75 million were
traded at 305.50 per dollar, a level
the market has closed at since
Monday.
Specifically, according to Bloomberg,
in the last two weeks, Exotix Partners
LLP and Standard Bank Group Ltd.
have told clients; most of who fled
after the country started imposing
capital controls from late 2014, that
they should start buying naira
assets again. The naira which has
been the worst-performing currency
this year among more than 150
globally has depreciated 37 percent
against the dollar since the Central
Bank of Nigeria, CBN abandoned its
peg on June 20, while bond yields
have jumped to more than 20
percent. The naira strengthened 4.6
percent to 315 per dollar on Tuesday
after falling to a record 350.25 on
August 19, 2016.
“The cheap naira is attracting
foreign investors,” said Lutz
Roehmeyer, a money manager at
Landesbank Berlin Investment, which
oversees about $12 billion of assets.
“At 325 per dollar, the naira is too
weak” and Landesbank anticipates a
rebound, he said.
Roehmeyer’s funds have doubled
their holdings of naira debt, albeit
in the form of bonds issued by the
World Bank’s International Finance
Corp. rather than the Nigerian
government, to the equivalent of
around $9.2 million this month, he
said.
The CBN fixed the currency in
February 2015 at 197-199 per dollar
to stop it plunging amid the decline
in the price of oil, on which Nigeria
depends for 90 percent of exports
and the bulk of government revenue.
He relented after 16 months as the
country stumbled toward a recession
and foreign reserves fell to their
lowest level in 11 years.
The naira has now weakened more
than any other major oil currency
since mid-2014, when crude prices
started retreating. It’s lost almost
half its value against the dollar in
that period, compared with 46
percent for Kazakhstan’s tenge and
35 percent for the Colombian peso.
That makes it a good time to buy
Nigerian one-year Treasury bills with
yields of about 22 percent, Stuart
Culverhouse, chief economist at
Exotix in London, wrote in an Aug. 9
note. The potential return is more
than 33 percent if the naira
strengthens to its fair value of 290
against the greenback, he said.
In April, one-year T-bills yielded just
10 percent.
Oil Production
The trade is not for everyone, given
Nigeria’s outlook. The economy will
shrink 1.8 percent this year, its first
contraction since at least 1991, the
International Monetary Fund
forecasts. Oil production has sunk to
a near three-decade low of about
1.5 million barrels a day as
militants attack pipelines and export
terminals in the south of the
country.
While Landesbank Berlin and Exotix
say the currency has fallen enough,
others aren’t convinced. The naira
will weaken to 396 by year-end and
515 by the second quarter of 2017,
according to Access Bank Plc,
Nigeria’s fourth-biggest lender.
Forward prices also predict worse to
come. Three-month non-deliverable
forwards trade at 357 to the dollar,
and one-year contracts at 394. The
median forecast of economists in a
Bloomberg survey is for the currency
to stabilize at 344 this year.
Sidelines Preferred
“The combination of a cheaper naira
and higher yields on naira paper are
tempting, but we remain comfortable
on the sidelines,” Brett Rowley, a
managing director at Los Angeles-
based TCW Group Inc., which
oversees $195 billion of assets, said
in an e-mailed response to
questions on Aug. 16. “Restoring oil
output would help assuage our
concerns.”
Investors are also yet to be
convinced that the naira truly floats.
The central bank sold dollars at 309
last week and may be trying to keep
the rate stronger than 320,
according to Craig Thompson of
Continental Capital Markets SA,
based in Nyon, Switzerland. The
naira trades at 395 on the black
market, 20 percent weaker than the
official rate.
“The exchange rate is closer to fair
value in the eyes of most investors,”
said Andrew Howell, a New York-
based frontier-markets analyst at
Citigroup Inc., the world’s biggest
foreign-exchange trader. “But there
still aren’t many inflows. You can’t
really call it a normally-functioning
exchange rate yet.”
Mitigating Risk
Bottom of Form
Still, bond investors are closer to
pulling the trigger than they have
been in more than a year. They’d be
even more confident if they were
able to mitigate the risk of further
depreciation by buying the naira-
settled futures that Nigeria
introduced in June, according to
Stephen Bailey-Smith, senior
economist at Copenhagen-based
Denmark’s Global Evolution Fonds A/
S, which manages $3.2 billion of
assets.
Nigerian local-currency bonds have
lost 17 percent in dollar terms this
quarter, through yesterday,
compared with the 3 percent average
return for 31 developing nations
monitored by Bloomberg indexes.
The yield on benchmark government
naira notes due January 2026 has
climbed 226 basis points since June
to 15.08 percent.
“We haven’t come back in to the
local market yet, but we’re looking at
it closely,” Bailey-Smith said. “If you
can get a yield above 20 percent and
hedge the FX risk, it’s not a bad
trade at all. The futures market is
intended to help you do that, but
it’s difficult to buy them.” |
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