Nigerian banking shares rise before new FX rule

Nigerian banking shares rose early on Wednesday before the central bank introduces a new foreign exchange policy, aimed at attracting foreign investors.
Domestic investors snapped up shares in banks, expecting the new policy will help generate foreign currency business, which had dried up under current currency policy.
The index of Nigeria's banking shares jump 2.50 percent by 1145 GMT, outperforming the broader index, which rose 1.09 percent to 27,327 points. FCMB and FBN Holdings each rose more than 5 percent.
The central bank announced last month it planned to abandon the naira's peg to the dollar, established 15 months ago. That policy has overvalued the Nigerian currency, hurt investments and damaged the economy
The governor of the central bank, Godwin Emefiele, will introduce the new policy at a news conference on Wednesday.
Traders said domestic investors were buying bank shares at cheap valuations, hoping that a more liberal currency market and a recent stock-market rally will draw foreign investors, who have avoided Nigeria and the risk of a currency devaluation.
"When we see the market pricing the new reality and the stocks de-rate to reflect the new profit base, we will let that shake out happen and let the FX find an appropriate level. It might well over-correct, which will give us an opportunity to buy," said Rob Marshall-Lee, investment director at Newton Investment Management.
Africa's biggest economy is facing its worst crisis in more than decade. Plunging oil prices have slashed government income, weakened the naira and forced the central bank to introduce controls to support the currency.
Emefiele said last month the central bank would adopt a flexible policy on the interbank market and abandon a de facto peg of 197 naira to the dollar. It will also retain a window for funding critical transactions, creating a dual exchange rate.
The naira was trading at 370 to the dollar on the black market on Wednesday.
Marshall-Lee says the currency may weaken up to 50 percent, which would erode consumer income and cause company profits to fall in the short term. But he hopes that a more liberal currency policy will help the economy to reset.
He said his fund favoured Guinness Nigeria, Nigeria Breweries, Zenith Bank and Guaranty Trust Bank (GT Bank) as they were more likely to weather the storm and see good future growth.