Prices of Nigerian financial assets like Federal government bonds and equities have continued strongly, contrary to popular expectations of a dip in prices and an anticipated sell-off, as the effect of a closely contested election weigh in on the socio-economic environment.
Beating short-term expectations, the NSE All Share Index has extended its gains to five days, rising higher by more than 2 percent since global ratings agency S&P downgraded Nigeria’s credit rating to B+, four levels beneath investment grade, over concerns of political instability and oil prices. FGN benchmark 10-year bond prices also rose 3.2 per cent during the same period.
“Local investors appear to be anticipating a rebound in foreign portfolio investment (FPI) post election”, says Wale Okunrinboye, research analyst at Asset and Resource Management. “They are basically front running FPI and positioning as the market has sold-off significantly over the past few months”.
A second wave of sell-off was expected by both analysts and investors, as concerns about increasing political risks from the elections weighed heavier and a falling oil price environment festered.
The March 28 election was billed to be the most closely contested since Nigeria’s return to democracy in 1999. Concerns over a non-peaceful resolution of the election outcomes, as well as the lower projected forex receipts on the back of falling oil prices is believed to have contributed to the S&P downgrade.
“The S&P downgrade was like flogging a dead horse”, says Obinna Ajoku, Chief Strategy Officer at Lagos-based Algor Strategies, a privately held equities investment firm that takes a philosophical approach to equities investment. “The impact of the downgrade will be minimal under the prevailing circumstances”.
Fast moving consumer goods multinational firm Unilever, last Tuesday announced that it was increasing its stake in its Nigerian unit from 50 percent to 75 percent, at a premium of 33 percent to the prevailing market price on the day of the announcement, suggesting that the firm is more interested in the longer term outlook, rather than the short term volatilities.
“The announcement of this deal in a week forecasted to be the most tumultuous in the Nigerian capital markets is indicative of the bullish view a few foreign companies have of the Nigerian economy”, Ajoku said.
Since the downgrade, Nigeria’s Eurobonds prices rose up by an average of 1.06 percent across all three issues as at the time of writing, while yields have dropped. 2034 (20-year) bond yields have dropped by over 4 percent since Friday, the day of the downgrade while 2024 (10-year) yields also fell by 4.03 percent, as at the time of writing.
Government Pension Fund Global, Norway’s $870 billion sovereign wealth fund said earlier this month that it had included Nigeria in its portfolio, as it seeks for yield outside of negative-yielding Eurozone bonds.
EDOZIE IFEBI
