Nigerian Stocks Surge as Forwards Reach Record on Naira Bets

  • All share index rises most in the world on flexibility call
  • Forward contracts predict currency falling to 300 per dollar

Nigerian stocks rose the most globally and naira forward contracts soared to record highs as traders increased bets that the central bank will abandon its currency peg.

The nation’s All Share Index climbed 3.8 percent by the close in Lagos to 28,260.61, the highest since Jan. 4 and extending its bull market run since Jan. 19 to 26 percent. Rates on three-month naira forward contracts climbed 18 percent to a record 291 per dollar, suggesting traders see the currency weakening close to that level in the period, compared with the current fixed range of 197-199.

The Central Bank of Nigeria signaled on Tuesday it would allow the naira to fall, abandoning a currency fix it has held for 15 months, starving Africa’s biggest economy of dollars and slowing foreign investment. Governor Godwin Emefiele said details of a new framework were still being worked out and would be released “in the coming days.”

The bank’s stance has deepened an economic slump caused by the plunge in oil prices since mid-2014. Gross domestic product contracted in the first quarter for the first time since 2004 as manufacturers struggled to buy imported raw materials and equipment.

Most of the investors buying stocks were local, with foreigners shunning the market until the central bank implements a change and loosens capital controls, according to Lanre Buluro, an analyst with Lagos-based broker Primera Africa Securities Ltd.

“I had a couple of big sell orders from international investors,” Buluro said by phone. “The way the market reacted was weird because the status quo hasn’t changed and the central bank has been talking about a new FX policy for months, but hasn’t done anything.”

Nigeria’s banking index rose 5.9 percent, erasing losses for the year and bringing it to the highest since Nov. 23. More flexibility in the foreign-exchange market would boost trading income for local lenders, who would also see gains in asset values based on a weaker naira, according to Renaissance Capital Ltd. United Bank for Africa Plc and Zenith Bank Plc led the advance in financial stocks, both jumping 10 percent.

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