WSTC Financial Services Limited sees the postponement of the general election by the Independent National Electoral Commission (INEC) as a threat to investors’ confidence and capital inflows.
“We believe this does not in any way bode well for ailing investors’ confidence and already lean capital inflows,” analysts at WSTC said in a research note.
Although it is not the firm’s place to put a call on the logic behind shifting elections on request from the nation’s security formations to launch a major offensive against the Boko Haram Islamic sect within the next six weeks, it states that it is not so optimistic about the capacity of the military to wave a magic wand within this period, especially because the military had failed to contain the menace in the last five years. Looking at the implication of this on the financial markets, the company holds a downside view about the value of the naira in the near term, saying “we retain our expectation of a further devaluation of the naira in the near term in order to check an avoidable depletion of the nation’s reserves.”
Read also: IEA makes cuts in US production forecasts
WSTC reckons that the fixed income securities remain a compelling asset class, as it expects yields on fixed income market to remain attractive in 2015. The position of the firm is anchored upon aggressive government borrowing as a result of ebbing government income from oil revenue and the maintenance of a tight monetary policy stance by the Central Bank of Nigeria, particularly in order to preserve positive net capital flows in the face of rising country risk premium.
“Although we expect market reaction to elevated political risks to create attractive entry points, we hold a cautious view on equities. Except for a significant reversal in the international prices of crude oil in the near term (which looks most unlikely), we expect the lull in the equities market to remain, at least, in the pre-election period, given a strong positive correlation between the performance of the Nigerian equities market and investors’ perception of domestic risks.
“In addition, we reckon that expectations of depressed corporate earnings and low dividend payout (on account of regulatory headwinds in the banking sector) will further subdue prices in the equities market in the near term,” analysts at WSTC said.
HOPE MOSES-ASHIKE
