Tumbling oil prices and political chaos have eroded Nigeria's lure for foreign investors, but they are likely to venture back if authorities will allow what some say is a much-needed currency devaluation.
The price of oil -- the source of 70 percent of Nigeria government revenue -- has fallen 60 percent since last June, pushing stocks down by a third over the same period. Local bond yields are 2 percentage points higher.
Adding to the pressure are almost daily attacks by the Islamist militants Boko Haram and political uncertainty as the country faces a closely fought election on Feb. 14.
The naira's 20 percent depreciation in the past year has further eroded the dollar value of foreign funds' holdings. But the depreciation has not gone far enough, investors say. Some reckon the currency must fall another 10 to 15 percent to reach fair value.
Malek Bou-Diab, a portfolio manager at Bellevue Fund's pan-African equities fund with $110 million under management, for instance, wants to see a devaluation of at least 10 percent before considering adding to his Nigeria holdings.
Foreign investors such as Bou-Diab pulled almost $1 billion out of Nigerian equities in the first 11 months of 2014, stock market data show. Along with the index's 32 percent fall in the past year, that has made share valuations cheap, but he is not tempted yet.
"For the short term, I understand the argument of low valuation. Yes, it is more attractive than it was -- but does it really price in the risk?," Bou-Diab said.
Investors believe that despite its decline, the naira remains expensive after more than a decade of booming oil prices.
REUTERS
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