Political stability spurs domestic markets

Godwin Emefiele, Governor, Central of Bank of Nigeria

The nation’s financial markets- capital and money were dominated by bullish run from the build up to the election results to post-announcement, which was peaceful.

Consequently, the markets were electrified by the exciting news flow in the political space, which renewed investors’ confidence, stoking further appetite for risks and impacting on various rates.

In the build up to the elections, political uncertainty and weakening macro-economic indicators had depressed investors’ confidence and beclouded the performance of economy, as investments decisions were either canceled or put on hold, while foreign portfolio investors scamper for safety.

Meanwhile, the foreign exchange reserves have plummeted to the tune of $29.8 billion, a development that was attributed to intervention by the Central Bank of Nigeria (CBN) at the Interbank Foreign Exchange Market.

The money market had started the week liquid, with opening balance of banks and Discount Houses estimated at N167.8 billion, which was attributed to the Open Market Operations (OMO) repayment of N104.9 billion that matured the previous week.

However, rates remained unchanged on at the beginning of the week relative to previous week’s close, with the Overnight and Open Buy Back (OBB) rates closing at 12.7 per cent and 13.2 per cent.

The rates, which appeared stable on Monday, fluctuated within the range of 12.6 per cent and 13.5 per cent for the OBB, while the Overnight rates moves between 13.1 per cent and 13.9 per cent between Tuesday and Thursday.

The Overnight and OBB rates however eased to 10.2 per cent and 9.5 per cent respectively on Friday, a 3.3 per cent and 3.0 per cent decline relative to last week close.

“We expect liquidity level to remain robust this week, though we anticipate that the CBN will conduct OMO issuances to mop-up liquidity, hence rates may inch slightly higher. T-bills totalling N183.64 billion will mature this week, although there will be a re-issuance of the same amount,” analysts at Afrinvest Securities Limited, said.

The rally in the equities market, which continued till Friday, saw the Nigeria Stock Exchange’s All-Share Index rise by 390 basis points (bps), a 16.9 per cent week-on-week, to close at 35,278.12, bringing year-to-date performance to 3.1 per cent.

The market capitalization also expanded by N1.8 trillion week-to-date to close at N12.1 trillion, while the activity level measured by volume and value traded for the week averaged 632.0 million and N8.2 billion week-on-week respectively.

The extended surge was recorded on the back of price appreciation in companies’ shares across the financial and conglomerates sub-sectors.

However, the resort to peaceful processes by the contending parties, independence and seeming transparency of the electoral commission, and the remarkable statesmanship of the incumbent President, Goodluck Jonathan, signaled stability to the polity, attracting inflow of investments immediately.

But analysts said that although the new leadership is expected to inherit a weak economy given lower oil prices, poorly developed infrastructure, corrupt institution and threat of insurgency, there is high expectation by the masses and the resolve of the incoming government for change may spur the economy towards the full attainment of its potential.

“We expect the exchange rate to stabilize to an average of N200/$ at the interbank and we see the equities market stabilizing and responding to fundamentals even as yield on fixed income instrument is expected to moderate further.

“We expect that the bullish run may moderate slightly in the coming week, notwithstanding the positive sentiments in the air as short term investors may take profit,” the securities company said.

At the foreign exchange segment, the naira at the interbank closed flat when measured week-on-week, at N199.10/$1, having opened the week at N199.11/$1.

CBN auctioned its dollar at N197, as the pressure on the naira moderated last week, stabilizing the economy following the announcement of the presidential elections results, with a marginal one kobo appreciation of the naira to N199.10/$1 on Tuesday.

“The sale of dollars by the central bank to defend the naira has led to the decline of the foreign exchange reserves to $29.8 billion, bringing year-to-date and week-on-week losses to 13.6 per cent and 0.2 per cent respectively.

“Corporate customers, who had earlier amassed dollars before the presidential election in order to hedge against anticipated political unrest have reduced their demands for the Greenback and chosen to convert to the local unit.

“We anticipate that the value of the Naira would appreciate gradually with time, although saddled with fetters of plunging oil prices. There are indications that foreign investors may be set to return to the market even as local investors garner the requisite confidence to continue to overweight on bonds given its relative safe haven,” the analysts added.