Four days after his emergence as president-elect, the price of the Nigeria has rewarded significantly, BUKOLA IDOWU and OLUSHOLA BELLO write
After months of stalling, inactivity and losses, the Nigerian economy seems to join the stream of jubilants on the successful and violence free presidential elections just concluded. Many Nigerians had taken to the street to celebrate the change of baton and the markets also rallied round in joy.
The capital market, which is the barometer of the economy, was on the upswing after the Independent National Electoral Commission (INEC) declared former military ruler, General Muhammadu Buhari as the winner of the March 28, 2015 presidential elections.
The Nigerian capital market gained 8.30 per cent its single biggest daily gain this year, wiping off the negative Year to Date (YTD) performance, after the INEC declaration. In the first quarter, the capital market indicators lost 8.40 per cent as a result of the uncertainty surrounding election and poor macro-economic factors. Market capitalisation of the listed equities under the period went down by N76 billion to close at N10.718 trillion, while the NSE All-Share Index fell by 8.40 per cent to close at 31,744.82 on March 31,
Operators in the Nigerian financial market are optimistic that, the market will bounce back with a comfortable lead by Gen Buhari, a disciplinarian that has promised to reshape the national economy as they set agenda for a new economy by the incoming government.
According to capital market analysts, the one day gain is the highest that has ever been witnessed in the history of the Nigerian stock market. Analysts at APT Securities and Funds Limited, stated that “we believe that positive rally of the situation is attributable to the peaceful conduct of the Presidential election and the Statesmanship of the incumbent President in accepting defeat and congratulating the President Elect, General Muhammadu Buhari. This has to a great extent assuaged the fears of foreign investors about the capital market as they are taking position by snapping up shares across the board.”
Following the announcement of the president-elect on Wednesday, the NSE All-Share Index went up by 2,635.32 basis points or 8.30 per cent from 34,380.14 to 31,744.82 basis points. Similarly, the market capitalisation of the listed equities appreciated by N903 billion from N11.621 trillion to N10.718 trillion. Market breadth remained positive with 65 gainers and three losers.
While it was business as usual at the money market and the interbank end of the foreign exchange market, the value of the naira got a boost at the black market where it sold between N209 and 210 to the dollar.
A black market currency dealer told Leadership that the value of the naira had been on an upward swing since Tuesday when signs that Gen Buhari would win at the polls emerged. “I however cannot say if the election results is the one affecting the dollar or something else, but I just know that dollar has been falling”, he stated.
At the interbank end of the foreign exchange market, the value of the naira remained stable at N197 to the dollar. Interbank lending rates also trended downwards since Monday with overnight rate dropping to 13.6683 per cent while one month and six month rates closed lower at 15.5486 and 17.5973 per cents. Bond yields also faced south on the news of the new president.
Yields on the more liquid FGN bonds, tightened by around 100bps, and more than 125bps for the Jan ‘22s.
Analysts at FBN Capital noted that the election only became an investor concern on its postponement, which created a number of negative scenarios for the offshore community. “Once these proved unfounded, a strong rally was always likely.”
Speaking on the impact of the announcement of the new president on the Nigerian financial market, the executive secretary of the Financial Market Dealers Association (FMDQ), Wle Abe noted that not much will change in the next quarter “because the new government that will take over will not do so until May 29. All that is likely to happen is that the status quo will be maintained. So we are not likely to have any significant development.”
“However, there will be positive perception due to the fact that Nigeria is able to change its government peacefully, so that is positive and a plus for Nigeria as an investment destination, so those who have been waiting on the line will now say the new government will soon come into place, so we will wait a bit to see the policies, in terms of the policy direction they are going to put on the table. Everything as at now is positive because peace will return.”
Also, the managing director of APT Securities and Funds Limited, Mallam Kurifi Garuba said, “the capital market has started to respond to the good news as it gained over 8 per cent on the day Buhari was declared as the winner of the presidential election.
He noted that Nigerian investors were excited about the outcome of the election as bond yields are also on sharp decline and the naira currency remains strong in the black market, saying that this election marks the first time, in Africa’s most populous nation, where a sitting president was voted out of power through the ballot box.
According to him, most analysts believe foreign investors backed Buhari’s victory and have been taking position by snapping up shares across the board. Foreign investors were sceptical on the Nigerian markets starting late last year, unnerved by political uncertainty before the vote as well as the sharp fall in the global price of oil which negatively impacted the currency, triggering devaluation in November.
Managing director of Highcap Securities Limited, Mr. David Adonri, said that the stock market reacted positively to the election of Buhari, saying after the initial euphoria, direction of the market will depend on post-election peace and economic policies of the new administration.
While analysts from GTI Capital Limited noted, “the major challenges that the new president will inherit when he takes the reins include insecurity, the Boko Haram scourge, power sector, depleting external reserves, corruption, exchange rate instability, the Niger -Delta, infrastructure and oil price volatility.
“Like we noted in our 2015 outlook report, the Diamond in the Rough, the crash in oil prices has exposed the frailties in the Nigerian economy and the consequences of our long years of dependence on crude oil, 90 per cent of our foreign exchange earnings has left the Nigerian economy vulnerable,” they pointed out.
According to Mr. Tunde Oyediran, a broker with Calyst Secrities Limited, the post-election (presidential) euphoria had an impact on the capital market and this will strengthen the economy, bring back investors’ confidence. He noted that there is much certainty that the new administration will perform well and the foreign investors will be coming back to invest in the market and economy as a whole.
Although the presidential handover is not due until late May, FBN Capital analysts say the new administration, which seems to have a different ideology on managing the economy, will be subject to the same fiscal constraints because a marked recovery in the oil price this year is unlikely. “There are not plentiful funds to throw at favoured projects. If it wants to extend the safety net for low-income Nigerians, it will have to generate additional revenues.
“We can say with a little more confidence that the APC administration will enjoy the goodwill of the international community, move to improve security across the country and enter office with the energy of a coalition which has achieved a first in Nigeria by defeating the incumbent at the ballot box. We suspect that it will pay more than lip-service to cooperation in the sub-region. On what is euphemistically termed economic governance, we would advise against high expectations of rapid improvements.”
Source Leadership NG