After Election Euphoria, Stocks Retreat as Oil Adds to Naira Devaluation Chances

After the initial euphoria of peaceful elections and emergence of retired General Muhammadu Buhari, Nigerian stocks dropped a second day, erasing gains made in 2015, as a lower oil price added to speculation that the country’s currency may be devalued.
The Nigerian Stock Exchange All Share Index declined the most since Feb. 12 on Wednesday, with more than six stocks falling for each one that gained. Prices for Brent crude, down almost 50 percent since June, retreated for the first time in three days to $58.09 a barrel, while the naira headed for the lowest since March 13.
“A lot of investors, especially foreign investors, are watching because they believe the naira is going to have to devalue further,” Kayode Akindele, a partner at TIA Capital Management LLP, which oversees about $200 million, said by phone from Lagos. “They believe the oil price is going closer to 45 and it might put renewed pressure on the naira.”
Nigerian stocks rallied 15 percent in the four days after the March 28-29 vote as President Goodluck Jonathan conceded defeat to Muhammadu Buhari, mitigating the risk of violence in Africa’s biggest economy. Buhari, 72, will inherit challenges including slowing growth, falling oil prices and the Boko Haram insurgency that’s waged a six-year campaign to impose strict Islamic law in the north. He will be sworn in on May 29.
The International Monetary Fund estimates economic growth will slow this year to 4.8 percent from 6.1 percent in 2014. The NSE’s All Share Index declined 2.3 percent to 34,144.97 by 1:46 p.m. in Lagos, the commercial capital. The gauge’s 14-day relative-strength index, which rose to the highest since February 2013 on April 2, decreased to below 70 for the first time in four days. A level above 70 typically indicates to technical analysts that an asset’s move is overdone.

Local Elections
Oando Plc, which operates a network of gasoline stations and explores for crude, led declines, losing 9.7 percent to N15.78. FCMB Group Plc, a financial services company, retreated 6.8 percent to N3.01.
Falling oil prices have weighed on the local currency, with the naira down 17 percent against the dollar in the past six months. The Central Bank of Nigeria devalued the currency by raising the peg at which it sold dollars to lenders at twice-weekly auctions in November, before scrapping the sales entirely in February and imposing other restrictions to reduce naira volatilty. It’s too early loosen the controls, spokesman Ibrahim Mu’azu said by phone Wednesday.
The naira weakened as much as 0.2 percent before trading little changed at N199.05 per dollar. While the presidential vote passed largely peacefully, investors are awaiting the results of local elections this weekend, said Akindele.
“They tend to be more competitive than the federal elections, especially in some key states like Lagos, and Rivers,” he said. “There’s a propensity for violence.”

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