Market observers have been calling for the central bank to devalue the naira currency in light of plunging oil prices. Meanwhile, investment in Nigeria has fallen off as foreign investors were deterred by capital controls needed to defend the naira’s peg while domestic businesses struggled to import materials.
After the announcement, three-month non-deliverable naira forward contracts rose to 310 per dollar, compared with the current official rate of 199. Analysts at Johannesburg-based Rand Merchant Bank expect the naira to trade within 280 to 350 against the dollar.
The Global X Nigeria ETF also likely declined on the weaker naira outlook. Since NGE does not hedge its currency exposure, a depreciating naira would mean returns are lowered when converted back into U.S. dollar terms.
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Global X Nigeria Index ETF