The sudden postponement of the Nigerian general elections has scuppered investors’ new found love for naira assets.
Before the sudden delay in the February 16 elections, investors were helping themselves to cheap Nigerian stocks and mouth-watering returns on government bonds.
The same 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 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% when compared to the $0.84 billion reported in the previous week ending February 1, 2019.
Foreign portfolio inflows through the said I & E window had gone from a year low of $460 million in December to $1.3 billion in January, with 60 percent flowing to money market securities while the balance went into equities.
The increased foreign inflows meant the naira strengthened against the dollar, equities gained and bond yields fell, all in a signal that investors expected credible and peaceful elections Feb. 16.
But that optimism has turned sour with the eleventh-hour postponement in the elections. The electoral body in charge of conducting the vote, INEC, released a statement 2:45am of the scheduled day that the elections had been delayed by a week to help it resolve logistic challenges that hampered the election.
The main opposition party, PDP, quickly interpreted the delay as a means for the ruling party, APC, to rig the elections. The ruling party denies the claim.
The impasse has dampened confidence in the election, with many investors expecting a contested result after the new Feb.23 election date.
It has fuelled uncertainty and naira assets are taking a beating.
Stocks were down 1.6 percent after Monday’s close, bond yields are up and the naira has slumped.
While yields on the country’s benchmark bond trended upwards Monday to close at 14.78 percent from 14.68 percent last Friday, the naira weakened to N362.07/$ from N361/$ Friday.
The one-year non-deliverable naira forward opened at a quote of 401 per dollar, compared with 397 in the previous session.
“With the nation speculated to lose roughly $1 billion in GDP for postponing as result of this, 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 wariness 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 Feb 18 note to clients.
