For those who are hopeful that the just concluded 2015 election that ushered in General M Buhari could continue to see the strengthening of the naira, we might just be in for a DEVALUATION shocker. According to an article from Bloomberg (see excerpts below) foreign investors are patiently waiting on the sidelines hoping that the naira will be devalued.
The article explains this is probably why the bond rally we had last week seems to have fizzled out as everyone is now waiting for what the CBN will do next. Operators in the interbank market for forex informed Nairametrics that an unmet demand of between $1.5billion to $2billion dollars is still waiting to be met as supply remains distant. This probably is the best time to hedge and start paying for all your dollar expenses due now or later in the year as further devaluation could increase your cost.
Nigeria’s post-election bond rally is stalling as foreign investors wait for a devaluation of the naira before buying the nation’s debt. Yields on benchmark naira bonds due March 2024 have climbed 61 basis points in the past three days after plunging 118 basis points on April 2, the day after Muhammadu Buhari of the opposition All Progressives Congress was announced the winner in a presidential election.
Investors including Morgan Stanley, Aberdeen Asset Management Plc and Landesbank Berlin Investment GmbH cut their local bond holdings in the last quarter of 2014 as the price of crude oil, Nigeria’s main export and source of more than two thirds of government revenue, fell by 37 percent during that period.
While naira government debt offers the highest yields among 31 developing nations tracked by Bloomberg, foreign investors have to factor in the increasing risk of a currency devaluation that will hurt returns when converted to dollars. “Political risks have diminished but the other risks are still in place: a very low oil price and pressure on the naira,” said an source.
“You can still expect a devaluation. I see a lot of local-currency investors waiting for that to happen before they re-enter Nigeria.” The central bank devalued its target rate for the naira to 168 per dollar from 155 in November. After that failed to stabilize the currency, it scrapped the official exchange rate on Feb. 18, moving all transactions on to the interbank market.