The current state of U.S political scene creates both challenges and opportunities for investors in the Nigerian Capital Market. While Trumps Victory in the United States Presidential election brought uncertainty to the global market as the air of unsettlement hit investors, there is a potential upside for Nigeria.
The momentary weakening of US dollar relative to the Naira, came into play as a result of the fear of how Trumps policies might impact the global markets which resulted in several reactions to sell off dollar assets in the early hours of the United States Presidential election, making the Nigerian Capital market a good vantage point to invest in.
While this may bring some respite to an already weak Naira, we believe the impact might be short-lived as markets would readjust while awaiting clarity on Trump’s policies. In the interim, we do not envisage that the weakening of the Dollar will be substantial enough to significantly strengthen the Naira and incite major interests in Naira assets.
However, the medium term impact on the Nigerian market will be dependent on the specifics of Trump’s policies. In another vein, if Trump follows through on his plans to deport illegal immigrants, there may be a decline in foreign remittances to Nigeria and foreign remittances are a key component of our current account balance.
Therefore investors are expected to remain largely cautious, with the likelihood that sell offs may persist in emerging market assets until clarity on Trump’s policies unfolds.
It is therefore recommended that the activities of the Nigerian capital market be properly monitored and investors should be sensitive to possible policy tradeoffs when the need arises between higher economic growth and rising price levels, sustained economic growth and stable prices, via a real time monitoring mechanism.
Written by InfoWare Limited