Naira devaluation might hit Kenya exchange inflows

The intended devaluation of the Nigerian Naira is likely to see dollar investors pump capital into Lagos stocks in pursuit of cheap assets at the expense of the Nairobi Securities Exchange (NSE), a senior economist says.

Renaissance Capital global chief economist Charles Robertson told Bloomberg that in the medium term, Nigerian investments are set to become more attractive to investors, having been put off in the past by the currency distortions in Africa’s biggest economy.

Investors

Kenya has on the other hand provided suitable conditions for foreign investors, with a relatively stable exchange rate, free foreign exchange flow and favourable returns on fixed income investments.

The Naira devaluation is coming about after removal of exchange rate pegs that held the official exchange rate of the Nigerian currency at 199 units to the dollar, which coupled with limits on who could access the forex forced many investors to the black market where the actual rate rose as high as 350 units.

“A bigger issue for Kenyan stock market or appetite for Kenya assets could be how successful Nigeria is with the currency transition that has just been announced. If that is very successful and Nigeria starts to look very attractive you could see money out of Kenya to go look at those opportunities in Nigeria,” Mr Robertson told Bloomberg.

The controls on access to foreign exchange as a result of the shortage did not help attract investors as well, given that they required assurances over their ability to move capital at will.

The artificially high exchange rate also hurt investors by limiting the dollar returns on investments, whereby those forced to the black market to buy dollars on exiting a portfolio wound up buying at much higher prices than what they had entered at.

The Nigeria stock market has been attracting at best the same level of net foreign inflows as Kenya’s NSE in recent months in spite of being three-and-a-half times larger in terms of monthly traded volumes and twice as large in market capitalisation.

Data compiled by Standard Investment bank shows that in April, both Nigeria and Kenya’s bourses attracted Sh384 million in net foreign inflows, even as Nigeria traded Sh34 billion worth of shares compared to Kenya’s Sh10 billion.

In the whole of last year, the Nigerian market saw net outflows of Sh38 billion, and Sh91 billion in 2014.

Kenya’s NSE on the other hand saw net outflows of only Sh1.2 billion last year, while 2014 had seen the bourse record net inflows of Sh8.7 billion according to the SIB data.