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Stock Market Lost N331bn to Naira Volatility in 2016

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Nigerian stock exchange
  • Stock Market Lost N331bn to Naira Volatility in 2016

The 54.8 per cent depreciation of the naira at the interbank foreign exchange market in 2016 resulted in a N330.99bn drop in the value of the Nigerian equities market.

The equities market posted a N604bn nominal loss in 2016 as the market closed at N9.246tn capitalisation from the N9.850tn recorded a year earlier.

The Central Bank of Nigeria data showed that the interbank exchange rate of the naira to the United States dollar as of the end of last year was N305; while for 2015, it stood at N197. Therefore, a 54.8 per cent year-on-year depreciation of the naira against the greenback led to a market loss of N330.99bn in currency terms.

Thus, in real/aggregate terms, the market posted N934.99bn loss in 2016, with the fall in the value of the naira playing a major role.

The gap between the interbank and parallel market rates of the naira against the dollar also widened significantly during the year, following the immense pressure on the currency, as the parallel market rate exchanged reached a high of N490/dollar at year-end.

In an attempt to bridge the gap between the rates and ease the pressure on the naira, the apex bank introduced the flexible exchange rate system, as well as an over-the-counter foreign exchange futures market on June 15, 2016.

In order to manage the pressure on the naira, the apex bank continued to manage the liquidity level through Open Market Operations and other interventions, hence, the system’s liquidity stood relatively low throughout the year, when compared to the prior year.

The President, Funds Managers Association of Nigeria, Dr. Ore Sofekun, said the country’s equities market had suffered a serious downturn over the last 36 months, driven by the combined effects of political risk (from the uncertain outcome of the 2015 elections), drop in oil prices, and the inadequate policy response to reduced dollar liquidity.

She said the prevailing market circumstances had not spared even large and blue chip companies, as all players in the market were taking a beating in their share prices at the moment.

According to her, companies seeking to raise fresh or additional capital in the Nigerian capital market are finding it increasingly difficult to attract the attention of stock market investors at the moment.

“If a company lists during a downturn like this, investors may price the shares much lower than the value the company’s management expects,” Sofekun added.

Analysing the economy in 2016, the Nigerian Stock Exchange recently said the bottoming out of crude oil prices and a drastic decline in domestic oil output affected crude oil export, which accounts for roughly 90 per cent and 70 per cent of the country’s forex earnings and government revenue, respectively.

This, it noted, resulted in foreign exchange liquidity challenges during the year, as the supply side of the forex to the CBN dropped by over 70 per cent despite heavy domestic demand.

Accordingly, the oil price shocks and the attendant prolonged forex dilemma, coupled with challenges to policy implementation, drove the Nigerian economy into its first recession in over 20 years by the second quarter of the year, the Exchange noted.

To this end, the Chief Executive Officer, NSE, Oscar Onyema, said capital markets tend to act as barometers of any economy; and in Nigeria’s case, the prolonged economic downturn directly impacted an array of products and asset classes on the Exchange.

After peaking at 31,071.25 in June 2016, an increase of 8.48 per cent over the 2015 closing value, the NSE All-Share Index began to retreat to negative territory as total foreign inflow dropped by 45 per cent between June (N42.46bn) and July (N23.43bn).

Onyema said the development was a function of the loss of confidence in the implementation of an announced free floating forex regime; weak corporate performance; and second consecutive quarter of negative economic growth in the period, resulting in the economy entering into a recession.

He explained, “Accordingly, we witnessed the lowest levels of foreign portfolio and domestic trading activities post the global financial crisis, with a year-on-year decline of 69.79 per cent and 56.79 per cent, respectively.

“This trend is consistent with the inverse correlation observed between the value traded on the NSE’s equity market and the spread between the parallel and interbank forex market rates, suggesting that both domestic and foreign investors seek stability in the monetary policy.

“In addition to sluggish performance in secondary markets, primary market activity was non-existent as there were no Initial Public Offers for the year, although there was one new company listed by introduction in the period.”

Amid these challenges, the Exchange said it had resolved to do a better job at promoting its unique value proposition to both global and domestic investors.

According to the bourse, good coordination between fiscal and monetary policies should result in the resolution of the identified structural deficiencies and drive economic growth, going forward.

It stressed, “We expect investors to continue to keep a close watch on the divergence between the interbank forex rate and other exchange rates in the country.

“Accordingly, a convergence of forex rates in the country and the performance of listed corporates will determine the level of market activity in the short term.”

The Director, Institutional Sales, Vetiva Capital Management Limited, Pabina Yinkere, said the current bearish state of the equities market aggravated by naira volatility would only make companies get weaker valuations than they would prefer for quoted firms and those warming up for listing.

The President, Constance Shareholders Association of Nigeria, Shehu Mikail, maintained that the country’s stock market was seriously troubled as the internal inflation was vehemently being strengthened by the forex crisis.

He said the outcome of the last year could repeat itself in 2017 if the government did not intensify its efforts to better the situation, as the stock market would continue to be a reflection of the country’s economic standpoint.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

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Travellers to Access $4k , Businessmen $5K as CBN Boosts Forex Supplies

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Nigerians travelling abroad can access a maximum amount of $4,000 foreign exchange from the banks following the Central Bank of Nigeria’s announcement to increase forex supplies.

Sources from some of the banks said those travelling on business trips could also access a maximum amount of $5,000 for each trip.

The CBN had said in a recent statement that it had concluded plans to increase the amount of foreign exchange allocated to banks to meet legitimate needs.

This followed the warning by the CBN Governor, Mr Godwin Emefiele, to Deposit Money Banks to desist from denying customers the opportunity to purchase foreign exchange.

The purposes to access forex included Personal Travel Allowance, Basic Travel Allowance, tuition fees, and medical payments as well as Small and Medium Enterprises transactions or for the repatriation of Foreign Direct Investment proceeds, the CBN had stated.

At a virtual Bankers’ Committee meeting last week, the bankers discussed how the CBN intended to assist with forex to ensure availability for the upcoming summer period and the return of students to school in September.

The CBN also said the BDCs would continue to have their weekly allocations.

The committee observed that the rates were going up.

It stated, “The CBN has said that all the banks must make available at all times and anyone who wants to buy BTA, PTA, medical fees, student school fees and all the eligible invisible purchases to ensure that Nigerians are not forced to go and queue in the parallel market.

“So what the Central Bank is doing is to encourage all banks to make sure that there is available forex at all times, and that his information should be communicated on all our platforms.

“We are asking our customers to come to the branches and for BTA, for example, present the required documents, which are basically your international passport, your visa, your valid ticket and fill up the form in the bank.

“And what we have been instructed to do is ensure that we don’t turn anybody back and that we should request from the Central Bank once we exhaust the forex that we have.

“The idea is to have a hitch-free summer period and the resumption for children to go back to school. The idea is to ensure there is less pressure on the forex and then the rates will come down.”

Speaking during the virtual meeting, the Group Managing Director, Access Bank, Herbert Wigwe, said, “I think again as part of the central bank’s role in terms of price stability and the need to support small and medium enterprises, there was a highlight of the need for banks to go and support SMEs who import small raw materials for them to set up their businesses.”

The Managing Director, Ecobank, Patrick Akinwuntan, said, “All banks are available to ensure forex need is met.”

Managing Director, Sterling Bank, Abubakar Suleiman, said the CBN had provided sufficient foreign exchange to meet the needs of all legitimate Nigerian travellers and therefore, the idea of going to any other market should not arise at all.

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U.S Dollar Gained as Fed Shifts Interest Rates Hike from 2024 to 2023, Crypto Drops

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Dollar Cryptocurrency - Investors King

The United States Dollar gained on Thursday after the Federal Reserve raised inflation expectations to 3.4 percent and moved the year it is expected to raise interest rates from 2024 to 2023.

Policymakers suggested that interest rates could be raised twice by late 2023 given “Summary of Economic Projections” (SEP) released on Wednesday.

The dollar index, which tracks the greenback against six major currencies, gained 0.63 percent to 91.103, its highest since May 6.

The jump was as a result of renewed interest in the American economy as growth is expected to hit 7 percent in 2021 despite the rising inflation. Similarly, economic conditions are projected to improve faster than initially predicted.

The Federal Reserve Chair Jerome Powell said “the economic conditions in the committee’s forward guidance will be met somewhat sooner than previously expected.”

The interesting thing is that the Fed has gone beyond simply acknowledging that inflation is rising and that the U.S. economy has a lot of momentum, and it has essentially shifted to a much more hawkish stance in this set of projections,” said Karl Schamotta, chief market strategist at Cambridge Global Payments in Toronto.

Powell said the central bank will maintain its $120 billion monthly bond-buying program to continue to support the economy but also suggested the possibility of pulling back on quantitative easing used to keep rates low.

I think we’re back to talking about a mild rally in the U.S. dollar and the data becoming very important over the summer period prior to Jackson Hole and September’s meeting,” said Simon Harvey, senior FX market analyst at Monex Europe.

Billions Flow Out of Crypto Market Ahead of Better US Economy

Investors are moving money in billions out of the crypto market, according to Whale Alert reports. On Thursday, 26,999,9990 USDT valued at $26,999,990 was transferred from Binance to an unknown wallet while another 19,999,995 USDT transferred from Bitfinex to an unknown wallet.

Investors moved 20,000,000 USDT to Bitfinex; 55,180 Ether worth $134,030,121 from an unknown wallet to another unknown wallet and 55,000 Ether estimated at $133,389,506 was also transferred to an unknown wallet in the early hours of Thursday.

5,000 Ether worth $12,168,082 and 1,000 Bitcoins worth $38,953,357 were transferred from an unknown wallet to Binance. To see the rest of the money being moved out of crypto space visit Whale Alert.

Cryptocurrency market capitalisation dipped by 5.03 percent in the last 24 hours but has lost $898 billion from $2.523 trillion it attained on Wednesday, May 12, 2021, to $1.625 trillion on Thursday, June 17, 2021.

The plunge in cryptocurrency was a result of improving global economic outlook, especially in the United States of America, the largest crypto investing nation.

The unregulated crypto space is largely treated as a haven asset to avert disaster during the global downturn. Meaning, an improvement in the global economy will generally impact cryptocurrency capital inflow and overall performance. Investors King expects cryptocurrency to extend its decline in the third quarter.

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CBN Raises Customs Forex from N381/US$1 to N404.97/US$

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Institute of Chartered Shipbrokers

The Central Bank of Nigeria has raised the Naira exchange rate for cargo clearance from N381/US$1 to N404.97/US$1.

This was confirmed by Uche Ejesieme, the Public Relations Officer (PRO), Tin Can Island Customs Command.

The PRO explained that it was not the customs job description to raise the foreign exchange rate but that of the central bank.

The N24 difference has been implemented on the customs system managed by Web Fontaine.

Commenting on the situation, Kayode Farinto, the Vice President of the Association of Nigerian Licensed Customs Agents, said the increase would further escalate inflation on import goods and hurt consumers’ buying power given the present economic situation.

An importer, Gboyega Adebari, who was shocked at the decision said stakeholders will be greatly affected by the decision.

According to him, “When we went to assess a job this morning, we were told that the exchange rate has been increased, though we have been expecting it, but we don’t expect that it would be so sudden. The implication of this on cargo clearance is that cost of clearance would increase by N24 difference.

“The cargoes that already enroute Nigeria would also be affected, the jobs that we want to clear this morning were affected.

“When you go back to the importer and request for money, they will tell you there is no notification of increase from customs, so the freight forwarders are the ones that would bear the additional cost.”

Naira plunged to N502 against the United States Dollar at the parallel market on Wednesday and traded at N715 to a British Pound and N605 against the European common currency, Euro.

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