Against conventional wisdom, there are no guarantees of a stock market rally in 2019. BusinessDay analysis on stock market performance in election years in Nigeria since 1999 shows that the stock market declined in three of the five general election years since the adoption of democracy in Nigeria.
Data compiled from the Central Bank of Nigeria (CBN) Statistical bulletin shows that the stock market declined in 1999, 2011 and 2015 and only rallied in 2003 and 2007.
On the other hand, our findings showed that the stock market rallied every year after an election excluding 2008 (the year of the global financial recession) and 2016 (the year Nigeria entered its first recession in 25 years).
“The stock market is looking for a pro-business President. If they get it this year, we may see a strong rally in the second half of the year,” said Maju Eldad, Lecturer in Economics department at the Federal University of Kashere, Gombe.
“As for 2020, the likelihood of global economic recession is a lot higher. If the risk does materialize then the global selloff may reach Nigeria, otherwise 2020 should be a good year for investors in Nigeria and other emerging markets,” Eldad told BusinessDay.
Another election year myth our analysis debunked is that the stock market will typically rally in the second half of the year after a successful election.
According to data on market performance, the stock market declined in the second half of the year in 3 out of the last 5 elections held in Nigeria.
In fact, the first half of the year, the period in which the election was held turned out to be a more productive period for the stock market as the NSE All Share Index delivered positive returns in the first half of the year in 4 out of the last 5 elections, with 2015 being the only year where the stock market posted negative returns in the first half of an election year.
Deeper research showed that elections are not the only factors that affects the stock market during election years.
In 1999, the year Nigeria elected her first democratic President – the stock market declined by around -7.16 percent. Recall this year coincides with Nigeria’s biggest devaluation of the Naira in a single year as the currency depreciated from N21.88 to $1 in 1998 to around N92.61 to $1 in 1999, translating to a 323 percent jump in the value of US Dollar in one single year.
The naira devaluation along with the political uncertainty of moving from military rule to democracy caused investors to selloff stocks and wait on the side-lines. However, once uncertainty subsided and the new President (then President Olusegun Obasanjo) began to restructure the economy with fresh policy initiatives, investors responded cheerfully, causing market performance to average 33 percent in the years leading up to the next election in 2003.
The election years of 2003 and 2007 was less eventful as the People’s Democratic Party (PDP) coasted to victory in the general elections. A more certain investment environment propelled by external factors such as rising crude oil prices and the emergence of a stock market bubble helped the local bourse deliver its strongest stock index returns since 1995 when the stock market returned 131 percent in a single year! In 2003, the stock market rallied by 65.84 percent and in 2007 it grew at an even faster rate of 74.73 percent, surprising numbers for election years.
It is unlikely that 2019 will deliver strong returns as 2003 and 2007 regardless of who wins the election this year but after the stock market declined almost 18 percent last year due largely to political uncertainty and slow economic growth, investors will be expecting stocks to bounce back following a successful election and stronger economic performance this year.
Join BusinessDay whatsapp Channel, to stay up to date
Open In Whatsapp
