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Naira Appreciates To N315.93/dollar As Foreign Investors Take Advantage by sjobest01(m): 7:36am 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.” |
Re: Naira Appreciates To N315.93/dollar As Foreign Investors Take Advantage by CHOPUP411(m): 7:38am On Aug 25, 2016 |
Buharia do something people are suffering |
(1) (Reply)
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