Nigerian market trading cautiously ahead of Fed tapering meeting - CNBC Africa

Nigerian market trading cautiously ahead of Fed tapering meeting

Western Africa

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“The market tends to either trade flat or be negative for the third quarter of the year. They’re two things that have basically impacted our markets as we speak. From the foreign portfolio investor end it’s the impact of the Fed meeting. Yields have gone up in foreign markets, so foreign markets are more attractive,” Adegboyega Olatunde, head of equities dealing at Primera Africa Industries, told CNBC Africa on Monday.

“From an investor perspective, you’re thinking as yields are more attractive, I don’t have the translation risk, I don’t have the political risk by investing in Nigeria. For them it’s a case of would I still want to be investing in Nigeria for now.”

A number of PFAs and investors are currently waiting on the side lines, anticipating market reaction ahead of the US Federal Reserve meeting in September.

Other investors are turning to the fixed income market in search of yields, which have become relatively attractive.

“At this point, the key thing as a PFA that I’d be looking at is safety rather than return. If they had invested in the equities market previously, they would have locked in certain gains. Right now, it’s a case of let me keep what I have,” Olatunde explained.

Nigeria’s second quarter GDP growth slowed to 6.18 per cent year on year from 6.56 per cent in the first quarter. Inflation numbers, which tend to have a direct effect on GDP growth, have so far remained stable.

The exit of Nigeria’s central bank governor Sanusi Lamido Sanusi, who will leave his post in eight months, could however play a crucial role in market performance in the short term.

“Next year is a year before elections. We generally know that our market tends to trade sideways because there’s a lot of caution preceding an election year. The key thing for Sanusi’s successor is whether there’s some type of continuity in what they’ve seen so far,” said Olatunde.

“Sanusi’s major policy thrust has been exchange rate stability, financial sector stability. What I’m looking at as a foreign investor is largely exchange rate stability, making sure that when I invest, whatever my returns are, I’m not exposed to that translation.”