Investors dumped Nigerian assets on the first trading day following the postponement of Presidential and National Assembly elections on worries that the delay is fuelling uncertainty.
The naira weakened, stocks fell and bond yields rose as investors exited positions.
The Independent National Electoral Commission (INEC) over the weekend postponed the elections for one week, hours before polls were due to open. It cited logistical reasons and denied political pressure had played any part.
“The economic consequences of this decision will be felt significantly, as what was supposed to be a smooth process is now mired in lengthened uncertainty and controversy, thereby shaking investor confidence and somewhat eroding the renewed interest from both foreign and domestic investors,” Lagos-based analysts at Vetiva Capital said in a February 18 note.
One-year non-deliverable naira forward opened at a quote of N401 per dollar, compared with N397 in the previous session. Stocks dropped 1.61 percent after they had climbed past a three-month high on Friday, and the delay hit Nigeria’s dollar-denominated bond yields and could affect demand at a sovereign debt sale this week.
The Federal Government plans to re-open its existing 5-year, 7-year, and 10-year notes as it looks to raise N50 billion each across these tenors in its February bond auction.
Yields on the country’s benchmark bond trended upwards Monday to close at 14.78 percent, from 14.68 percent last Friday. The naira weakened to N362.07/$, from N361/$ Friday.
“With the nation speculated to lose roughly $1 billion in GDP for postponing the elections, the near-term economic outlook has gone sour,” said Lukman Otunuga, an analyst at FXTM Research.
“This week, we expect to see a furtherance of this bearish trend as investor sell-offs may persist in line with the overall weariness stemming from the current political climate. Therefore, we advise investors to trade cautiously and take advantage of maturities with attractive yields,” Otunuga said in a February 18 note to clients.
Before the sudden delay in the February 16 elections, investors who had fled the market in the months leading up to February over political uncertainty ahead of the general elections had a change of mind and sought to take early positions in expectation for a post-election rally.
An indicator of increased foreign appetite for naira assets in the lead-up to the elections showed up in the value of transactions done in the Investors and Exporters foreign exchange market, a market where foreigners buy and sell dollars.
The value of transactions in the window topped a billion dollars, precisely $1.74 billion, in the week-ended February 8, 2019, an increase of 107.14 percent when compared to the $0.84 billion reported in the previous week ending February 1, 2019.
The increased foreign inflows meant the naira strengthened against the dollar, equities gained and bond yields fell, all in a signal that investors expected credible and peaceful elections February 16.
But that optimism has turned sour with the eleventh-hour postponement of the elections.
“The sudden postponement few hours to the elections was a sad commentary. It has deepened Nigeria’s political risk with dire consequences on investment decisions,” said Sola Oni, a Lagos-based stockbroker.
Nigeria has a history of election delays after postponing the 2011 and 2015 votes. President Muhammadu Buhari was meeting with senior members of his party on Monday over the postponement and has urged voters to stay calm.
The main opposition rival, former Vice President Atiku Abubakar, said on Saturday that Buhari’s administration hoped to disenfranchise the country’s electorate by delaying the vote.
Analysts say the postponement could negatively affect Nigeria’s economic recovery.
“The effect on the wider economy also cannot be understated due to disruptions to key sectors including maritime, aviation, and oil and gas,” Vetiva Capital analysts added.
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