March 6, 2019/InvestmentOne Report

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·         The long anticipated 2019 general elections were concluded on the 23rd of February 2019, after being postponed for a week due to ‘logistics challenges’. With 73 candidates vying for the number one position in the country, the two candidates from the dominating political parties – Incumbent President Muhammadu Buhari (APC) and Atiku Abubakar (PDP) – are both indigenes from the northern region of the country.

·         In contrast to the 2015 elections, this made it difficult to predict voting patterns and thus, the general investor pre-election conclusion was that the elections would be ‘too close to call’. Additional to this was the shock decision of President Buhari, barely weeks before the elections were set to take place, to suspend the Chief Justice of Nigeria, Walter Onnoghen. In our opinion, this contributed significantly to the heightened political risk, which hampered investor sentiment towards naira denominated assets.

·         Now that 2019 presidential and national assembly elections are over, we expect the Nigerian equities market to continue its recovery. While we believe market sentiment might be more bullish if Atiku Abubakar of the PDP had won considering the general belief of his pro-business drive, we opine that lower political risk, on the back of relatively peaceful election, should improve investors’ sentiment in the Nigerian equities market.

·         Following the announcement of the election results, we have seen record high turnover in the IEFX window, which we suspect may have contributed to improved participation in the fixed income space.

·         We expect yields to continue to remain compressed in the near term after which we may see funds gravitate to the equities market because of lower yields. This may then support slight increase in yields in the medium term because of higher government borrowing, which may be prompted by uninspiring revenue generated.

·         The first four years of his Presidency, the incumbent could have been described as a solid advocate of a statist economy. He made his position on foreign exchange policy clear and to a large extent, one could say he got what he wanted even though it came with a high price: Sky high interest rates.

·         Nonetheless, against this backdrop, we are proposing a relatively stable exchange rate (Official: NGN305/USD, I&E and Parallel: NGN360/USD), holding other factors constant, as opposed to the floating Naira that the opposition candidate proposed during the campaign season.

·         Even so, we highlight factors that pose as downside risks to this view, which include:  Shocks to Oil Price/Oil Production, Possible U.S Fed rate hikes and Dwindling FX reserves.