Punch||Economists and analysts have said Nigeria’s financial markets may continue to react negatively, at least in the short term, to the suspension of Mr. Lamido Sanusi as Governor of the Central Bank of Nigeria. The prices of stocks have tumbled on reduced demand by cautious investors, while the naira has also fallen at the interbank market, since Thursday when changes at the central bank were announced.
According to the analysts, the suspension of the CBN governor has put the naira under severe pressure and external reserves are expected to be further depleted with stock prices and the fixed-income assets set for significant decline. They explained that this was because the controversial move had given foreign portfolio investors a serious cause for concern, and may precipitate massive sell-off of Nigerian assets in coming weeks.
Although some analysts said the quick nomination of the Group Managing Director, Zenith Bank Plc, Mr. Godwin Emefiele, as Sanusi’s successor might calm the turmoil, several others believe that the financial markets would continue to experience uncertainty. This, they said, was because investors would experience difficulty in determining the economic philosophy and personality of Emefiele due to his low public profile.
The Managing Director, Cowry Asset Management Limited, said investors might not be too concerned about whether the incoming CBN governor would reverse Sanusi’s tight monetary policy as such policy reversal would lead to major macroeconomic instability.
“The issue for investors in the Nigerian market will be the nature of Sanisi’s exit, whether it has undermined the CBN’s independence. Another factor that will be of concern to investors is the economic and policy orientation of the newly nominated CBN Governor; most importantly, his pedigree as an independent minded person.
“Given that Emefiele was not given to making public comments, it may be difficult for investors to place his personality and economic philosophy.
“These two factors – an affront on CBN autonomy and lack of clarity on Emefiele’s economic policy orientation – may create uncertainties in the financial market with possible exit of some foreign portfolio investors, depletion of Nigeria’s foreign reserve, pressure on naira exchange rate and increase in fixed income yield in the next couple of days.”
An analyst at DLM Securities, Mr. Idowu Ogedegbe, said the timing for Sanusi’s suspension was wrong.
“There has been a massive fall in fixed income securities and stocks lately due to the US tapering and policies in Europe. Portfolio investors had invested in the country since January beginning of the year. This decision will send another bad signal and will lead to portfolio inflow reversals,” he said.
Analysts at Afrinvest Research noted that Sanusi had succeeded in establishing some form of confidence in the market as depicted in foreign exchange and price stability and stabilisation of the banking system within the last four years.
“As a consequence of President Goodluck Jonathan’s suspension of the CBN Governor, we anticipate a huge capital inflow reversal with monumental impact on the Nigerian capital market and the currency.
“We also expect the stock market to assume a bearish trend in the near term especially the banking stocks. The FGN bond yield should also cross the 15 per cent mark in the near term as investors re-price Nigeria’s country risk, while the naira is expected to come under intense pressure, hovering above N175 per dollar at the BDC market segment. We suggest provisions should be made to adequately insulate the CBN governorship position from political pressures. This will ensure the independence of the CBN and facilitate sustained confidence from the international investment community. We anticipate the administration will address this urgently to adequately nip these negative impacts in the bud.”
The Head, Research and Intelligence, BGL Plc, Mr. Femi Ademola, explained that the immediate impact on the financial markets was likely to be sharp and severe.
“There may be a risk of capital flight to the detriment of the exchange market while sell down pressure on equity and fixed income instruments could persist for some time as the markets grapple with uncertainties,”