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The recent devaluation of the Nigerian currency, the naira, has sparked renewed interest from foreign investors in the country’s stock market.
Since President Bola Tinubu’s administration allowed the naira to weaken by 40%, overseas investment flows have increased significantly, leading to a 7.5% rebound in the stock market over the past two weeks.
History has shown that currency devaluations, although causing short-term pain, can ultimately boost stock values and investment flows in the long term.
This trend has been observed in countries like Argentina, Turkey, Lebanon, and Egypt.
Foreign investors are optimistic about the future of Nigeria’s economy, particularly if the government implements favorable economic policies, stabilizes oil prices, increases crude production, and improves foreign exchange availability.
The Nigerian stock market has already been performing well in local-currency terms, and the administration’s economic reforms have surprised investors with their intent and execution.
The World Bank predicts that Nigeria’s growth rate could almost double if it implements reforms to increase non-oil revenue and reduce inflation.
The NGX All Share Index has experienced gains in naira and dollar terms, reducing its valuation discount compared to emerging-market peers.
Foreign-investor participation has also increased since the devaluation, but further assurance of continued reforms, as well as monitoring of foreign-exchange volatility and inflation, will be necessary for deeper and sustained investment flows.
This article was updated 8 months ago
