Reuters: US Dollar Report: Global mood, oil fears weigh on Nigeria markets-analysts

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Global mood, oil fears weigh on Nigeria markets-analysts Jun 26th 2012, 15:58 Tue Jun 26, 2012 11:58am EDT * Naira, stocks likely to see little relief soon * Investors exit Nigeria on falling oil prices * Outlook for Naira assets tied to oil price * Weak global growth, Europe's debt worry investors By Chijioke Ohuocha LAGOS, June 26 (Reuters) - Nigeria's beleaguered naira, bonds and stock market are likely to see little relief in coming months as jittery investors worried it could be hit by falling oil prices continue to sell off positions. The naira has lost 4 percent since April, as offshore investors exit bonds, while its main stock index is struggling to rise much above its 21,000 point support level. The recent sell off has been spurred by fears world oil prices could fall below the $72 a barrel price on which the government of Africa's second biggest economy has based its 2012 budget. Oil, Nigeria's main export commodity, has fallen to around $90, compared with its peak of almost $126 earlier in the year, on concerns about a weak global economy and crisis in Europe. "The underlying problem is Nigeria's great dependence ... on oil earnings. It cuts to the heart of most investor exposure," said Razia Khan, head of Africa Research at Standard Chartered. "For as long as there is concern that oil earnings could be at risk, then Nigeria is unlikely to see a scaling up of foreign portfolio investor flows," she told Reuters. Nigeria was a darling of frontier investors, with one of the best performing stock markets in 2006/07. At its 2008 peak it traded $100 million a day. Now it barely manages $16 million. Bonds too are seeing lower foreign interest, with a resultant climb in yields - the most liquid three-year is trading at 15.5 percent, up from 11.23 percent a year ago. Traders say foreign investors are not panic-selling short term debt, but that when it comes up for maturity, they are taking their money back rather than reinvesting it. Treasury bill positions that were being rolled over are sold. Global markets are in generally cautious mood. "The main reason for the exit (of foreign funds) is higher global risk aversion ... stemming from concerns over Europe's debt crisis and a weaker global economy," said Stuart Culverhouse, chief economist at brokerage firm Exotix. "This flight to safety is not unique to Nigeria." It is not likely to change any time soon, however. "We can't just expect the euro zone crisis to end in a few months, this is a long-standing issue," said Samir Gadio, emerging market strategist at Standard Bank. "It has the potential to result in intermittent increased financial market volatility," which would hurt Nigeria. Nigeria's index is still trying to recoup losses of almost 17 percent sustained in 2011 - a 22 percent loss in dollar terms, thanks to naira weakness. "Were oil prices to fall further to an average of $80 through 2012/13, Nigeria's current account surplus would narrow ... (and) ... an acceleration in portfolio and other banking sector capital outflows is likely to gain further momentum," said Andrea Masia, analyst at Morgan Stanley. "This exodus of capital may also lead to significant currency weakness, potentially forcing USD/NGN to 170 naira." That might compel an adjustment of the central bank's 150-160 target band. Naira/dollar eased to a 22-week low of 163.68 two weeks ago, on strong demand by investors repatriating funds, but bank intervention has since lifted it to 162.45 naira to the dollar. With foreign reserves of around $37 billion and a low debt to GDP ratio of around 16 percent, Nigeria has some leeway to keep defending the naira at current levels, but nobody knows how long it might have to do so. Link this Share this Digg this Email Reprints

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