Nigerian Naira Is Overvalued by 20% vs USD Says Bank of America

LAGOS (Capital Markets in Africa) – “A 20% depreciation in the NAFEX/NGN spot exchange rate is still needed to reach fair value, despite last year’s partial devaluation and the recent moves in key FX windows,” Bank of America analysts Yusuf Rukayat and Gabriele Foa say in a note to clients. They recommend avoiding naira debt, even with 1-year T-bills yielding 22% and FX-hedged trades yielding 12%. “While NGN carry is similar to EGP, we find risks higher in Nigeria and fundamental support stronger in EGP”.

“The similarities between the two countries mostly end with high carry. In Egypt, the devaluation brought REER close to historical lows, inflows momentum is robust and the government enjoys solid support from the IMF. Nigeria, on the other side, is a commodity exporter who didn’t let the currency fully adjust to the new macro backdrop”. “Only point in favour of Nigeria is positioning, since NGN longs are relatively under-owned, while the EGP long positions are now turning crowded”. Bank stays market weight on Nigerian dollar bonds.