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Respite is in view
for the naira which has suffered consistent weakening due to elections
triggered speculations over the months.

With the
presidential elections behind, the naira is expected to appreciate over
the next few weeks and foreign portfolio inflows are expected from
multinational companies who may have otherwise been reluctant to sell
off the coveted dollar at the forex market due to elections anxiety.

“The considerable
increase in Forex demand over the past two months was mainly of a
speculative nature, notably if one factors in the surge in demand from
the Bureaux de Change,” Samir Gadio, emerging Market Strategist,
Standard Bank Plc, said.

“As a result, we
expect the naira (which is currently trading at 154.9 to a dollar) to
appreciate over the next fortnight, as domestic investors somewhat
unwind their long dollar positions and foreign portfolio inflows
progressively resume, coupled with the usual end-month Forex sales by
oil companies,” Mr. Gadio said, adding that the forecast is based on the
assumption that the current disturbances in the north do not escalate.

He said that this
trend will also be reinforced by the Central Bank’s desire to maintain
exchange rate stability and possibly by some fiscal restraint in the
post-electoral period, if the government is able to reverse the upward
revision in spending recently put forth by the National Assembly.

“Although local
currency bond and T-bill rates are driven by endogenous macroeconomic
fundamentals and supply-demand dynamics (even as foreign participation
remains marginal), the positive offshore sentiment and expectations have
already translated into a rally in the Nigerian Eurobond whose yield
fell 65 basis points to a record low of 6.29 per cent on 18 April, from
6.94% on 25 March.

“In practical terms,
we see further upside potential for the Nigerian Stock Exchange, which
rallied 1.6 per cent today as local sentiment improves and also because
international investors had reduced their exposure to the country in
recent weeks,” Mr. Gadio said.

However, Renaissance
Capital, an investment bank, says, “In our view, investors can enhance
their returns by picking up banking stocks that are still trading cum
dividend, as we expect these counters to retrace most of the dividend
mark-down loss in the short term.”

Renewed optimism anticipated

Afrinvest, a
finance, research, and investment advisory firm, says it expects renewed
optimism to positively impact on the direction of the market, following
the successful conduct of the presidential elections.

It, however, says early profit booking might negatively impact market momentum this week.

“As political
uncertainties wane in the aftermath of the concluded presidential
elections, we do not expect strong demand for the dollar in the coming
week.

“We foresee an
increased level of supply of the greenback by multinationals for
month-end transactions; hence a mild appreciation in the value of the
naira is anticipated in that segment of the market. We expect increased
activity in the market this week, hence a decline in yields, on the back
of renewed political optimism,” the firm said.

The firm said the
DMO bond auction for April should also buoy activities in the primary
segment of the market, just as the release of March inflation figures
this week is expected to shape the direction of the market in the short
term.

Last week, valid
dollar demand was 44.5 per cent above the amount sold by the Central
Bank, higher than the excess demand of 36.3 per cent recorded in the
previous week.

The naira subsequently weakened at the interbank market owing to
reduced dollar supply by multinationals and the regulatory body, which
exerted an upward pressure on the naira-dollar rates.