Johannesburg - Nigerian stocks dropped, overtaking Zimbabwe as Africa’s worst performer this year, as sliding oil prices weaken the nation’s ability to defend its currency at a record low.
The Nigerian Stock Exchange All Share Index fell for a 10th day, bringing losses in 2014 to 13.1 percent, the most of 14 African gauges monitored by Bloomberg.
Zimbabwe’s benchmark gauge is down 11.7 percent.
The currency of Africa’s largest producer of oil declined a fourth day as Brent crude headed for its lowest level in five years.
Nigeria, which relies on the commodity for 80 percent of government revenue, has run foreign-exchange reserves to a three-month low in a bid to defend the naira, avoid raising interest rates or devaluing the currency before elections in February.
The NSE All Share Index’s 50-day moving average fell below the 200-day moving average on October 31, a technical indicator that may be bearish for the gauge.
Nigeria’s central bank “remains intent on managing the exchange-rate situation without needing to hike rates or devalue the currency,” Gareth Brickman and Catherine Bennett, analysts at Johannesburg-based ETM Analytics, said in an e-mailed note.
“Current trends still show the outlook to be pressuring away its room for maneuver.”
A falling currency deters foreign investors from holding Nigerian assets, while boosting the cost of importing everything from fuel to food and threaten support for the party of President Goodluck Jonathan, who’s already under pressure for failing to stem deadly attacks by Islamist militants.
Wider Impact
The NSE All Share Index slid 2.3 percent to 35 899.05, the lowest since September 2013, as of 2:07 pm in Lagos, the commercial hub as 50 stocks retreated, four rose and 141 were unchanged.
The gauge is the world’s fifth-worst performer this year after benchmarks in Russia, Portugal, Greece and Austria.
The naira weakened 0.8 percent to 167.24 per dollar.
“As we move forward over the coming months and oil prices move downwards or remain stable there will be a significant impact potentially on wider macro economics,” Tim Newbold, regional director for West Africa at africapractice, a consultancy, said on a conference call yesterday.
The central bank may eventually have to devalue the naira, “depending on the rate of the fall of the oil price,” he said.
Oil has slumped into a bear market as the largest producers in the Organization of Petroleum Exporting Countries resisted calls to cut output.
Global supplies are climbing, with the US pumping at the fastest pace in more than 30 years.
Oversold Indicator
Nigeria’s economy is set to grow 7.2 percent next year, outstripping Kenya at 5.8 percent and South Africa with 2.5 percent, Standard Chartered Plc forecasts show.
The NSE’s main index is trading at 10.1 times future earnings, compared with 15.2 for South Africa’s FTSE/JSE Africa All Share Index and 12.5 for Kenya’s Nairobi Securities Exchange All Share Index.
The Nigerian gauge’s 14-relative strength index is trading below the 30 level seen by some traders as overbought for a seventh day.
Nigeria is one of “the most exciting long-term structural growth stories on the continent with a very young population, a population of 170 million people, and strong growth in the middle class,” Joseph Rohm, who helps manage Investec Asset Management’s Africa funds.
“As we move through the election next year, the sentiment around Nigeria will improve.” - Bloomberg News