Stock Market Ends Rally as Naira Stabilises

Parallel market, inter bank rates unify as CBN maintains stance on liquidity

- Goddy Egene with agency report

Nigerian stocks declined yesterday, ending the longest rally in two and a half years as the euphoria that greeted the peaceful presidenti­al and National Assembly elections faded to focus on the challenges facing the economy amid lower oil prices.

The Nigerian Stock Exchange (NSE) All Share Index (ASI) dropped 2.2 per cent to close at 34,941.79 points, the most since March 16. Ten straight days of gains had pushed the gauge above the threshold that signals to some investors that an asset is overbought.

The NSE ASI last week rallied at 15 per cent and market capitalisa­tion adding a record N1.8 trillion in the four days after the March 28-29 vote to erase losses for 2015 as President Goodluck Jonathan conceded defeat to Muhammadu Buhari, mitigating the risk of violence in Africa’s biggest economy.

“Some of the headwinds

in the economy are still there,” Thabo Ncalo, a money manager at Stanlib Asset Management Limited, which oversees about $45 billion, told Bloomberg by phone from Johannesbu­rg.

“Now that we’ve had the good news, everyone is sitting down and looking at valuations.”

While stocks declined, the naira firmed more than six per cent at the parallel market on Tuesday as individual­s who had stockpiled dollars to hedge against political risk because of the general election sold off their holdings, black market dealers said.

And for the first time in several years, the naira exchanged at the same rate both in the parallel market and the inter bank market on the back of continuing strong liquidity position of the Central Bank.

The naira to one United States dollar firmed-up at N197 at the parallel market operated by bureau de change after falling from N220/$ to as low as N180/$ on Thursday.

According to Bloomberg, the challenges Buhari, 72, will inherit when he is inaugurate­d on May 29 are immense. The price of oil, the nation’s main export and biggest source of government revenue, has dropped almost 50 per cent since June.

The Internatio­nal Monetary Fund (IMF) estimates economic growth will slow this year to 4.8 per cent from 6.1 per cent in 2014. In the north, the Islamist militant group Boko Haram has waged a six-year insurgency that the government says has killed more than 13,000 people.

Meanwhile, investors who saw stocks rise by as high as 30 per cent, began profit taking yesterday, leading to a decline in the prices of 42 stocks as against 20 advancers.

The gauge’s 14-day relativest­rength index, which rose to the highest since February 2013 on April 2, decreased to 75.7 on yesterday. A level above 70 may indicate to technical traders the measure was overbought.

Guaranty Trust Bank Plc led the decliners, falling 8.1 per cent to N29.30. Seplat Petroleum Developmen­t Company retreated seven per cent to N421.80 as prices for Brent crude decreased 0.7 per cent to $57.70 a barrel.

The economy is also facing a weaker currency, with the naira down more than 17 per cent against the dollar in the past six months. The currency faces the prospect of a sell-off when the central bank of Africa’s biggest oil producer removes trading restrictio­ns imposed last year to reduce volatility.

Commenting on the stock market performanc­e, analysts at Afrinvest West Africa, said despite the moderation in political risk post-presidenti­al elections, the breather in the market was expected given the impressive 10-day gaining streak.

"We expect that the market will broadly trade sideways this week as short term investors sell down to take profit while medium to long term investors continue," they said.

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