Nigeria’s banking stocks have pushed the NGX to positive results this week. Experts believe the suspension of CBN chief Godwin Emefiele and floating of the naira could be responsible.
Nigeria’s NGX continued its mini-bull run today in a strong week for the stock exchange. The NGX All Share index gained 3.9% yesterday, and in the early hours of trading today, it was up another 1.8%, driven primarily by the stocks of Nigeria’s Tier 1 banks. Financial markets experts told TechCabal that the market and investors are reacting positively to the suspension of Central Bank chief Godwin Emefiele. The move towards a unified exchange rate in the early hours of today was also well received.
Onome Ohwovoriole, an analyst with Money Africa, told TechCabal, “The stock market rally this week has been driven, in my opinion, by two factors: reported unification of the official exchange rates and suspension of the CBN Governor.”
Oise Ajayi, the head of investment research at Achoria asset management, also told TechCabal, “Historically, banking stocks have delivered some of the best returns in the market. The general positive mood in the market is because the government is taking steps in the right direction. The removal of subsidy and today’s news about the Naira float has been long coming, but the previous government refused to initiate them for whatever reason. Now that they have come to the fore, the country seems to be moving in the right direction, and investors are showing their confidence by taking a position in the market.”
Still early days?
The CBN’s latest move in floating the naira and allowing banks to sell forex at market rates would drive a lot of movements. “We might still be seeing more movements later on today or tomorrow,” Samuel Oyekanmi, another researcher, said. Several analysts agree that this bullish run could last five days before investors look to take a profit. “Typically, when prices rise like this, you can expect some profit taking soon. So profit-taking will impede the current bullish run,” Ajayi added.
Ultimately, it’s helpful to remember that these are still early days. While these policies are a step in the right direction, naming a cabinet and an economic team will be the litmus test for investor confidence in the coming weeks. Ohwovoriole noted that there still needs to be more clarity around forex policy as the unification of the foreign exchange rates is just the first step.
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