The prevailing peaceful atmosphere
after the presidential election is already yielding economic dividend
as the naira displayed strong character against the dollar, occasioning a
drop in the yields on fixed income instruments.
Despite initial anxiety about Nigeria’s
political climate, early concession of defeat by outgoing President
Goodluck Jonathan and the largely peaceful conduct of the elections
appear to have diminished risks to investing in Nigerian assets.
The appreciation of the nation’s currency
among others, portend that investors may have re-priced the
socio-political stability faster than current fundamentals suggest,
according to analysts.
Currently, the naira has been
appreciating at the parallel market, exchanging for between N190/192 to a
dollar, while yields on the more liquid FGN bonds tightened last week
by around 100basis points (bps), more than 125bps for the Jan 2022s. The
Jul-2034 note, however, traded flat.
BusinessDay investigation shows that
after significant sell-off when pre-election political risks heightened,
the Bond, Treasury Bills (T-Bills), and Forex Markets turned bullish
post-election.
Specifically, the bond market traded
positive, as yields for most instruments (mostly at the shorter end of
the curve) fell and average yield on T-Bills declined, while the naira
strengthened against the greenback.
Yields across the bond market pared last
week, as investors seemed to have renewed confidence in the Nigerian
market on the back of a fairly seamless presidential election.
Also, yields on T-Bills show the 1month,
2month, 3month, 6month, 9month, and 12month pegged at 12.10% (-2.04%),
13.88% (-0.51%), 14.12% (-0.34%), 14.68% (-0.11%), 14.85% (-1.00%), and
15.35% (-1.28%) respectively.
However, analysts are of the opinion that
Muhammadu Buhari, the president-elect, would come into office at a time
when the nation’s buffers are at their lowest.
“We expect a viable sustenance in the
recent trend going forward,” said analysts at Lagos-based investment
house, Meristem Securities Limited.
These positive developments have increased the buy tendencies of international investors and domestic institutional buyers.
Analysts also believed that political
risk played a prime role in shaping the capital market outlook.
Currently, there are plans by the Debt Management Office (DMO) to raise
N70billion bond by mid-April. Bond yield rose yesterday, as liquidity
moderated.
“The long end of the curve has sold off
in recent times, as market expectations continue to shift in the
direction of the new macro realities in the market,” said investment
analysts at Lagos-based United Capital plc.
“We expect a continued softer yield
environment in the medium term, driven mainly by reduced political risk.
However, the need for the CBN to maintain a tight monetary policy
environment in the face of daunting macroeconomic challenges, will
create a floor for yields in the 13.0%-13.5% range for the rest of the
year”, the analysts added.
At the BDC, the naira exchanged for N200 against the greenback; while at the interbank, it stood at N199.
With political risks nearly completely
out of sight, declining global crude oil prices remain the only
substantial threat to the local currency.
But, the analysts believe that the
incoming government has a herculean task ahead, as the macro picture
remains gloomy amidst high expectations of a positive change.
They said the drop of the fiscal year
2015 expected budget oil price to $53 per barrel (/bl), from $77.5/bl in
2014, implied the Federal Government’s 2015 fiscal revenue would drop
by one third.
They reasoned that the near-depleted excess crude account implies no access to savings to offset the decline in revenue.
“Current trend in the debt markets which
was tending towards foreign borrowing, means less pressure on domestic
debt markets could change under a new finance minister. However, should
the current positive wave spill-over into international capital markets,
recent yield compression could prove sustainable,” said investment
analysts at ARM.
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