Nigeria Stock Exchange indices fall to negative over Sanusi’s suspension

Analysts say Mr. Sanusi’s suspension may scare off investors
In stock market reaction to the suspension of Nigeria’s Central Bank Governor, Lamido Sanusi, on Thursday, Nigeria’s economic indices has fallen to negative.
Highlighting the impact of the moves on stocks, Ola Yusuff, the CEO, Trust Yield Securities Limited, a stock broking firm, said, “Prices went down; even Foreign Exchange went down. All economic indices of the nation were negative, as at yesterday (Thursday). Today (Friday), banking sector stocks went into negative. This continued later today as the stocks are still down. They may pick up next week.”
Since Mr. Sanusi’s suspension, the Nigeria Stock Exhange, NSE, All Share Index, ASI, has lost a total of 2.8 per cent, due to selling pressures emanating from foreign and local market players reacting to the news. The true impact of this development is however yet to unravel as the news continues to filter across markets and participants.
Mr. Yusuff, commending Mr. Sanusi for going to court to contest the constitutionality of his suspension, said the issue was however sending mixed signals and investors would be nervous.
According to him, the suspension has led to three major concerns in the market. “The autonomy of the Central Bank is in question. This development signals an attempt to question the autonomy of the Central Bank of Nigeria. This impression created would affect foreign investors. If they get hold of that impression, they can move out their investments from the market. The second concern is whether the Acting Governor, Sarah Alade, will continue with the existing policies or change them? The assumption might be that being on Mr. Sanusi’s team, she would continue, but this is another uncertainty.
He said the third concern was the “new man coming,” the managing director of Zenith Bank, Godwin Emefiele.
“What will be his policies in terms of defending the naira or will he allow easy money? The autonomy of the Central Bank Governor is very important because without it, it means the Central Bank Governor can be told to print more money and he will print; that is the concern. Right now, everyone is nervous, because there are no answers to these questions,” Mr. Yusuff said.
Afrinvest, an investment bank, said the suspended Central Bank Governor had succeeded in establishing some form of confidence in the market as depicted in foreign exchange and price stability; coupled with the cleaning up and stabilisation of the banking system within the last four years. It said that this had helped preserve the value of investments in Nigeria despite threats posed by the recent US quantitative easing, QE, tapering.
“As a consequence of President Goodluck Ebele Jonathan’s suspension of the Central Bank Governor, we anticipate a huge capital inflow reversal with monumental impact on the Nigerian capital market and the currency. We also expect the stock market to assume a bearish trend in the near term especially the banking stocks. The Federal Government of Nigeria bond yield should also cross the 15.0 per cent mark in the near term as investors re-price Nigeria’s country risk, while the naira is expected to come under intense pressure, hovering above N175 per dollar at the BDC (Bureau De Change) market segment,” the firm said.
Afrinvest, however, said the legitimacy of the president’s suspension of the Central Bank Governor might be called to question as events unfold.
“In addition, the appointment of an objective and independent Central Bank Governor remains a daunting task if the suspension of the current Central Bank Governor is sustained. This should negatively impact investor’s perception of the country, driving the Corruption Perception Index (CPI) further south of the 144th rank (out of 175 countries) in 2013,” it said. “We suggest provisions should be made to adequately insulate the CBN governorship position from political pressures. This will ensure the independence of the Central Bank and facilitate sustained confidence from the international investment community. We anticipate the administration will address this urgently to adequately nip these negative impacts in the bud.”
In its analysis, an investment bank, Renaissance Capital, said, “We think Sanusi’s departure and what we see as the compromising of the CBN’s independence will put downward pressure on reserves and in particular undermine the ability of the Central Bank to defend the target exchange rate. We think this implies a bigger and earlier naira devaluation than we had initially expected. Our bank analyst, Nothando Ndebele, describes Mr. Emefiele as very conservative. Under his stewardship Zenith has established itself as a leading, well-capitalised and stable bank with a high portion of assets sitting in T-bills and bonds. We believe he is likely to maintain a firm policy environment and would be inclined to tighten policy in the current environment of naira weakness.”
Highlighting the implication of this development on the nation’s monetary policy until June, the firm said Acting Governor, Mrs. Alade said on Thursday that the Central Bank will remain committed to price stability.
“Given that she is in essence a caretaker governor until June, we do not expect her to make any major policy moves at the next monetary policy committee (MPC) meeting on 24-25 March. We think the MPC will hike the policy rate by at least 1 ppt and the public sector cash reserve requirement (CRR) to 100 per cent, which the banks expect” RenCap said. “But we think it is less likely that the Cash Reserve Ratio (CRR) on private sector deposits will be increased, because only two MPC members, including Mr. Sanusi, voted for this at the January MPC meeting, implying it was a minority view. We think there is a small risk of a devaluation of the naira in March, partly because Mrs. Alade said in January that she would support a review of the mid-point of the exchange rate band (currently N155/$). This would help stabilise the market, in our view, assuming the exchange rate target band adjustment met the market’s expectation.”
Thursday, 20 February, was a very eventful day in Nigeria, at least for the money and capital market following Mr. Sanusi’s suspension for “financial recklessness and misconduct. The suspension came after Mr. Sanusi accused the Nigerian National Petroleum Corporation of failing to turn in proceeds from crude oil sales worth $20 billion (N3.3 trillion) to the federation account. The Deputy Governor the bank, Mrs. Alade, was subsequently appointed as acting governor until June, while Mr. Jonathan nominated Mr. Emefiele, as the next governor