Nigeria’s FX, monetary environment attracting investors into domestic financial assets —RenCap

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1 year ago

A fresh report by frontier markets investment bank, Renaissance Capital (RenCap), has stated that recent reforms in the foreign exchange market and the monetary policies of the Central Bank of Nigeria (CBN) have improved the real or inflation rate-adjusted returns of investors, creating favourable investment conditions for foreign investors.

RenCap Africa Research also noted that Nigeria’s local currency may be undervalued by as much as 30 percent in foreign exchange markets.

The company’s researchers observed that the recent Naira-to-Dollar exchange rate of N1,300/$ could provide hidden value investment opportunities.

RenCap’s analysts further observed positive changes in Nigeria’s monetary policy. It will be recalled that the recent 600 basis points increase in the country’s Monetary Policy Rate (MPR) by the CBN has led to a rise in domestic interest rates. RenCap analysts, therefore, suggest that investors appear to demonstrate confidence in the leadership of the country’s Central Bank and believe that the CBN governor, Olayemi Cardoso, was sending the right message to global investors.

The analysts noted that there are no plans to print Naira to meet the Federal Government of Nigeria’s budget gap, which would signal intolerance to higher fiscal-led inflationary pressures.

The report mentions that Nigerian bonds are becoming increasingly attractive to global investors, yielding 18 to 19 percent compared to US treasuries yielding between four and five percent.

However, the analysts noted that the stability of the Naira was crucial in sustaining the Nigerian fixed-income market’s attractiveness. It was also observed that the Nigerian equities market is globally the cheapest, making Nigeria’s corporate equity stocks particularly attractive to foreign investors.

Several Nigerian and foreign analysts, including Goldman Sachs, RenCap and Financial Derivatives, are bullish on Nigeria. Nevertheless, there are some risks, which include currency stability, inflation rate and oil prices, it stated.

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