Investors move to re-price Nigeria’s risk over Sanusi suspension

Filed under: Intelligence |

Nigeria’s financial markets experienced vibrations in all the segments yesterday, following the suspension of Sanusi Lamido Sanusi, Central Bank Governor, as equities, fixed income and currency were adversely affected.

However, the nature of Sanusi’s exit and its undermining tendency of the independence of the CBN became a major issue of discussion in the financial markets.

“Another factor that will be of concern to investors is the economic and policy orientation of the newly nominated CBN Governor and his pedigree as an independent minded person. Given that Godwin 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 be the reasons for financial market instability 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 and weeks,” says Johnson Chukwu, managing director, Cowry Asset Management limited.

FOREX MARKET

On the forex market, the uncertainty of investments in Nigeria was further heightened, which implied that the commitment of the CBN to protect the naira exchange rate may be significantly threatened.

At the equities market, average foreign investor’s sentiment entered flight mode, while at the money and bond market, indications emerged that the FGN bond market was immediately shut down following the announcement to avoid disruptive sell offs in the market.

Investors feared the impact as they emphasised that Sanusi demonstrated patriotism to ensure that Nigerian economy is insulated against external

shocks with the price and exchange rates stability achieved by some of his policies.

STOCK EXCHANGE

At the Stock Exchange, equities market eroded the previous gain of 1.09 percent after closing negative at the end transaction. As sell pressure mounted, the NSE All Share Index (ASI) declined by 1.47 percent, from a high of 39, 397, 09 points to 38,816.19 points while the value of listed equities declined to N12.468 trillion from N12.654trillion, down by N186billionNIGERIA-FINANCE-BANKING-STOCK-EXCHANGE

BusinessDay investigations further revealed that within the hour following the announcement of the Sanusi’s suspension, the naira depreciated sharply to N169/$ at the interbank market from N163.7/$ it closed the previous trading day. The Nigerian interbank foreign exchange market was reported suspended for the day, following the volume of demand that hit the market in the following hours. Significant pressure also mounted up at the Bureau de Change (BDC) end of the market.

Market analysts at Meristem Securities Limited said: “The impact of Sanusi’s suspension was immediately felt as the naira came under immense pressure depreciating to N169 a dollar down from N164 the previous day, thus resulting in a temporary shutdown of the market to douse the pressure.

The fixed income market did not open for trading. The mood in the equities market was bearish, characterised by negative sentiments and selling pressure from investors. We are of the opinion that the recent development is being perceived by foreign investors as a loss of autonomy by the Apex bank thus aggravating the already heighted uncertainty.”

Abiola Rasaq, team leader, research, UBA Capital told BusinessDay that they had expected markets to react negatively to the news, “as it reinforces our conservative view on the naira.” He expressed optimism that equities, fixed income and currency markets should be bearish in the near term; impairing recent stability.

Looking at the impact on the markets, he said: “Naira traded as high as N169/per

dollar on the back of the news and yields rose higher, thus leading to a shutdown of the markets. Whilst this is down to enable investors recover from the shock and reassess the fundamental impact.”

“Notably, this event may usher in a more collaborative policy direction with the fiscal authority. Our expectation of an extra-ordinary general meeting before the scheduled March meeting becomes more reinforcing with likely devaluation of the naira through an increase in the mid-point to N162 per dollar about 5 percent devaluation which should calm recent speculation. More so, it will provide increased Naira revenue to the government; a mild cushion to weakening fiscal dollar inflows from oil,” Rasaq added.

AFRINVEST

Afrinvest analysts said, “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 15.0% 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. However, the legitimacy of the president’s suspension of the CBN Governor might be called to question as events unfold.”

Sewa Wusu, market analyst at Sterling Capital said, “My take is that the suspension of the CBN Governor may temporarily hurt the financial system as investors and market players will respond negatively to the news. The suspension may likely create some levels of uncertainty and volatility in the market because the position of CBN governor is very imperative to an economy. I believe the suspension will come as a shock to foreign investors who are seeing the country as investment destination,” Wusu noted.

Accordingly, he added that foreign investors will likely want to evaluate the impact of this news on their existing portfolios, while adopting a wait and see approaches in the near term before making any investment decisions in the country`s investment space.

“This is more so because their investment decisions are influenced largely by regulatory pellucidity and relatively stable macroeconomic environment of which the Nigerian economy has enjoyed over the last couple of months, particularly if you priced in some of the policies adopted by CBN under the leadership of the suspended governor,” Wusu said.

FACE-OFF

Femi Ademola, head, research and intelligence, BGL plc said, “Since the tenure of Sanusi is almost over, it was expected that he would be allowed to complete it, especially since the rumoured face-off with the President has been resolved.”

“In recent times, the monetary authority has presented itself as the saviour of the economy and the market by its management of exchange rate and interest rate. The attractive yield on Nigeria’s fixed income instruments and the stable exchange rate in the face of risks to fiscal sustainability have been serving as attractions to foreign portfolio and direct investors” Ademola noted.

He said that the immediate impact of the development at CBN on the financial markets is likely to be sharp and severe; adding “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. However, the quick move to announce an eventual successor to Sanusi Lamido Sanusi may calm the uncertainties,”

“The global foreign exchange market cannot be suspended and the constraining approach to managing the potential hemorrhaging of the Naira could only spell further doom for the currency because as investors find it hard to convert from the currency, they get more panicked and the pressure is sustained longer than necessary. This could eventually result in the forced official depreciation of the exchange rate in the short to medium term to N160/$- N165/$ range. To stem this tide, the interim leadership of the CBN would have to immediately deploy intervention measures into all segments of the market and supply the US dollar in abundance which would come at costs of significant further erosion of the reserves,” Ademola said.

“As investors move into flight mode on the back of the increased uncertainty on the Nigerian economy and the fortune of the Naira exchange rate as highlighted above, the sell offs are inevitable. In this regard, we are likely to see a total upward shift in the Nigerian yield curve- increases in yields across all maturities. It is also not unlikely for the yield curve to develop a hump with yield at the short end of the market rising disproportionately to the longer end of the yield curve.

PORTFOLIO INVESTORS

This trend may however not be sustained for long as higher yield becomes attractive to domestic large portfolio investors especially the pension funds who would find reprieve in the bond market. In this regard, the supply- demand dynamics that this situation may create for the fixed income market may see yields and short term rates rise to between 14%-16% on the average in the short term,” the BGL analysts added.

With 51.8 percent foreign transaction content in the Nigerian stock market, Sanusi’s suspension could be damaging for the equities market.

Ademola noted that as a leading indicator of economic sentiments, the uncertainty that this development implies is likely to support the bearish trend in the short term as portfolio investors rush to exit; adding “The market which has sustained significant bearish performance since the beginning of the year turned round this week from a two week long downward spiral that was signaled by the monetary policy action of increased cash reserve ratio of public sector deposits in banks, at a time the US tapering of quantitative easing was already impacting the market,”

JOHN OMACHONU, IHEANYI NWACHUKWU & ONYINYE NWACHUKWU

10 Responses to Investors move to re-price Nigeria’s risk over Sanusi suspension

  1. This is not true. What happened was a situational shock. The whole financial system will normalise in a matter of days, especially after the world would have read the report of the Financial Reporting Council of Nigeria on how the man you are celeberating squandered the resources of the nation put under his care. Except you are one of those who benefitted from the illegal and satanic largesse, you must tell the world the truth about Sanusi. You should also re-draw the graph in your last Friday’s front page cataloguing Sanusi’s achievements by showing his unbelievably official infractions while in office. For goodness sake, let us think Nigeria. There cannot be no business any day if there is no Nigeria.

    tradewell
    February 23, 2014 at 1:06 am
    Reply

    • My friend. You are an economic illiterate. I read the “so called” infractions… none of which are as major as the siphoning of $1bn of forex reserves a month by the sinkhole that is the NNPC – unless ofcourse you and yours have benefited and you don’t think that is a major problem. You don’t like Sanusi – fine. He was leaving in 3 months. The president that you so willfully support – for what might be ethnic reasons – is so dangerously incompetent you can’t even see it. Nigeria is an extractive, resource dependent economy. The only benefit the government has been able to provide in recent years – away from supposedly cheap petrol has been currency stability – which is based on CBN credibility and stability. In one act of ill considered stupidity, Naira stability has been pushed around and foreign investors have been rattled – all to push out a guy who was leaving 3 months later anyway.

      This was a stupid and ill considered move by a political novice.

      BAA
      February 25, 2014 at 2:05 pm
      Reply

    • The shock was not situational my dear, it was as a result of Sanusi’s sack. You clearly showed that you have an unresolved case against Sanusi as a person.

      There must be a market shock even if Sanusi was the most competent CBN boss in the world because the vision of the next CBN boss is still unknown. He (next boss) may decide not to consolidate on well articulated achievements by Sanusi.

      Therefore this unstable trend will continue until investors are convinced of the type of personality (economic wise) of the next person to handle our economic variables.

      The next CBN boss has little or nothing to achieve if the economic environment is not rid of corruption. This was exactly what Sanusi was helping the government to realize and pursue. Its unfortunate…

      GODDAY
      February 27, 2014 at 2:31 pm
      Reply

    • Sanusi was playing politics with the economy and the Presidency did the right thing. He did all in his power to incite the masses against the govt and leaving his main job of fiscal policies. When people say his infractions were not worth it, they should tell us if they would have left him if they were the President.Sanusi was simply not it, and many people saw it from the onset. Speaking good english and being persuasive does not mean he was saying the truth. Can someone explain wahy a CBN govt will go to Abia and say how much militants were paid? What is the confidentiality requirement of the job?

      Don_c
      March 8, 2014 at 11:52 pm
      Reply

  2. The shock was not situational my dear, it was as a result of Sanusi’s sack. You clearly showed that you have an unresolved case against Sanusi as a person.

    There must be a market shock even if Sanusi was the most competent CBN boss in the world because the vision of the next CBN boss is still unknown. He (next boss) may decide not to consolidate on well articulated achievements by Sanusi.

    Therefore this unstable trend will continue until investors are convinced of the type of personality (economic wise) of the next person to handle our economic variables.

    The next CBN boss has little or nothing to achieve if the economic environment is not rid of corruption. This was exactly what Sanusi was helping the government to realize and pursue. Its unfortunate….

    GODDAY
    February 27, 2014 at 2:27 pm
    Reply

  3. The shock is situational. Whenever, their is a change of a key decision maker in any organisation expect the market to react; and in most cases their is an over-reation either up or down an after the market digest the news their will be a correction. Sanusi, may actually, be telling the truth about corruption at NNPC, which a have a bias to be true but the problem is black calling kettle black. But, the report of Financial Reporting Council of Nigeria is not very encouraging engaging in all manner of construction and development projects from funding education to hotel construction. This is clearly a deviation from the CBN mandate of monetary policies. I personally, see this as an avenue to award contracts. I see him spending some time in jail like Ibori, because their will be sufficient envidence for and indictment. It’s important NNPC be thoroughly investigated. The mistake Sanusi made was to shout corruption when he actually part of the system.

    Gilbert Utubor
    March 1, 2014 at 4:55 am
    Reply

  4. INDEED, WAS A PRETTY MISTAKE BY THE PRESIDENT TO SUSPENT HIM. PLEASE AS A GOOD NIGERIAN,WE SHOULD ALWAYS CONSIDER THE PUBLIC INTEREST NOT PERSONNEL BUT ANYAWY,MAY ALMIGHTY GOD SAFE OUR NATION (NIGERIA).

    sanda
    March 5, 2014 at 10:34 am
    Reply

  5. What is happening in the financial and capital markets is a normal and expected reaction to an uncertain situation by investors and various economic agents. Investors would normally be expected to take precautionary measures to safeguard their investments in the short run while they analyze the situation further. The uncertainty caused by the sudden change of the cbn governor is heightened by the lack of understanding of the personality and economic views of the new governor. It will therefore be helpful if Mr. Emefiela can quickly adapt to his new role and put forward some immediate indications of his policy direction. Though it might be argued that this might be a bit early but he should also understand that the investors need to see his direction to make further investment decisions in the long run.

    To me the removal of Lamido Sanusi is political and it is my take that political considerations should be de-emphasized when taking decisions that affect the economy. Sanusi could have done some things that are perceived to amount to financial crime but removing him so suddenly, even when he has about three months to leave, definitely sent the wrong signals to the investors both foreign and domestic. The autonomy of the cbn should be sacrosanct if we have to achieve economic stability.

    Tony
    March 9, 2014 at 10:57 am
    Reply

  6. Factually mr.president is a man that can tolerate and socialize with any person especially people in his administration which every body knows without politicizing and segregating or sundering out issues.though nobody knows his motive except God. And No body wants his servant to be rubbing shoulder together even if the master errs. sanusi lamido was intently arrogant and black mailing demonstrations to his authority with intent of politics and ethnicity, that was why he was not stable and factual in his claim. Mr.president has been seeing sanusi’s dubious and arrogant displaying for long and he kept withstanding and tolerating him till sanusi indirectly comes out with political and ethnical intent to put his finger into the the authority’s eye and the president did the perfect thing any of us can do if such position is given to us and it does not surpass all the previous actions the previous presidents did like obassanjo and all the Hausa presidents. every body know that Mr.president good luck has good intention for this country and works than all the previous presidents though he had never achieved any definite purpose.Also at the end he might still join the wagon of the previous presidents in self centered and cruel manner without making things look all right or bring uncommon transformation. or he can still prove indeed the deference in him. Again am not enthinicizing issues here but I just want government and leaders of perfect understanding who does not lack knowledge like often Nigeria leaders and government to bring uncommon transformation and definite change to my brothers and sisters, my fellow human being at the north, eastern and wastern part of this country . in conjunction, national conference can achieve nothing to us if there is no sincerity and equity among our government down to local government And all sectors, who has been the enigma to this country even down to educational section university, polytechnic, etc. what keeps bewildering our nation’s outstanding development and improvement is hidden and exposed demostrations among leaders especially among our leaders and government which needs to be correct with understanding by our government and leaders .

    Zubby
    March 22, 2014 at 9:58 am
    Reply

  7. Factually mr.president is a man that can tolerate and socialize with any person especially people in his administration which every body knows without politicizing and segregating or sundering out issues.though nobody knows his motive except God. And No body wants his servant to be rubbing shoulder together even if the master errs. sanusi lamido was intently arrogant and black mailing demonstrations to his authority with intent of politics and ethnicity, that was why he was not stable and factual in his claim. Mr.president has been seeing sanusi’s dubious and arrogant displaying for long and he kept withstanding and tolerating him till sanusi indirectly comes out with political and ethnical intent to put his finger into the the authority’s eye and the president did the perfect thing any of us can do if such position is given to us and it does not surpass all the previous actions the previous presidents did like obassanjo and all the Hausa presidents. every body know that Mr.president good luck has good intention for this country and works than all the previous presidents though he had never achieved any definite purpose.Also at the end he might still join the wagon of the previous presidents in self centered and cruel manner without making things look all right or bring uncommon transformation. or he can still prove indeed the deference in him. Again am not enthinicizing issues here but I just want government and leaders of perfect understanding who does not lack knowledge like often Nigeria leaders and government to bring uncommon transformation and definite change to my brothers and sisters, my fellow human being at the north, eastern and wastern part of this country . in conjunction, national conference can achieve nothing to us if there is no sincerity and equity among our government down to local government And all sectors, who has been the enigma to this country even down to educational section university, polytechnic, etc. what keeps bewildering our nation’s outstanding development and improvement is hidden and exposed demostrations of ethinicity among leaders especially among our leaders and government which needs to be correct with understanding by our government and leaders .

    Zubby
    March 22, 2014 at 10:05 am
    Reply

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