• Index has climbed 20% since January on naira devaluation talk
  • Africa’s biggest economy shrank in first quarter, data show

Nigerian stocks entered a bull market as investors bought equities in anticipation of a currency devaluation that would boost share prices, even as data showed Africa’s biggest economy is in danger of a recession.

The Nigerian Stock Exchange All Share Index closed at 27,129.41 on Friday, more than 20 percent above a three-year-low in mid-January. The measure fell for the first time in four days on Monday, dropping 0.6 percent to 26,978.6 by 12:21 p.m. in Lagos, remaining in bull-market territory.

The bourse has gained 7.7 percent this month, compared with a 6 percent loss for the MSCI Emerging Markets Index, after President Muhammadu Buhari signed a record budget in early May to stimulate Africa’s biggest economy and officials hinted at a devaluation, according to Chapel Hill Denham Securities Ltd. On Friday, after the market closed, data showed that Nigeria’s economy contracted in the first quarter for the first time since 2004, surprising analysts in a Bloomberg survey.

“Nobody really expected a contraction,” Tajudeen Ibrahim, head of equity research at Chapel Hill, said by phone from Lagos. “It came as a shock and the market’s responding to that” on Monday, he said. “Beforehand, local investors were responding positively to news of the budget and in anticipation that there would be a move on the currency.”

The Abuja-based central bank’s Monetary Policy Committee will make its next decision on interest rates on Tuesday afternoon. Despite the weak economy, inflation at around a six-year high of 13.7 percent will force it to raise the policy rate of 12 percent by between 50 and 250 basis points, according to 18 of 20 analysts in a Bloomberg survey.

The regulator may also loosen its stranglehold on the naira, which has been pegged at 197-199 per dollar since March 2015, by introducing multiple exchange rates or ending some of its capital controls, according to banks including Barclays Plc and Goldman Sachs Group Inc. On May 11, Vice President Yemi Osinbajo announced a policy review that “may feature” a devaluation, suggesting a shift from Buhari’s previous comments ruling out such a move.

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