Jonathan’s Exit Seen As Spark Needed To Ignite Markets

President Goodluck Jonathan left the floor of the Nigerian Stock
Exchange after a visit two weeks ago to traders singing “For
He’s a Jolly Good Fellow”. Some investors would prefer that he
keeps walking.
According to Bloombery since rising to a five-year high in July,
Nigeria’s benchmark stock index has plummeted 30 per cent
and is now only 11 per cent higher than when Jonathan took
office in May 2010. Stocks in South Africa and Kenya rallied 90
per cent in the period, while those in Zambia and Ghana more
than doubled. The naira fell to a record in February and
domestic government bond yields of almost 16 per cent are the
highest among 31 emerging markets monitored by Bloomberg
indexes.
“It’s been horrible,” Ayodele Salami, who oversees $200 million
of Nigerian assets as chief investment officer of Duet Asset
Management, said by phone from London on February 23.
“Foreigners have been getting out of equities and fixed income.
Bond yields in Nigeria are now astronomically high.”
Jonathan’s failure to wean Nigeria off its reliance on oil and
save surplus revenue when crude prices were trading at record
highs, is coming back to haunt his campaign for a second term
in office. A plunge in crude of almost 50 per cent since June
risks slowing economic growth in 2015 to half the pace set over
the past 15 years. A win for his opponent, Muhammadu Buhari
of the All Progressives Congress (APC), may tempt foreign
investors back to Africa’s biggest economy and spur a rally in
Nigerian assets, according to Holger Siebrecht at Boston-based
Acadian Asset Management.
The election was delayed by six weeks after security forces said
they needed more time to defeat an insurgency by Islamist
militant group Boko Haram, which killed 4,700 people last year,
according to UK-based risk consultancy Verisk Maplecroft. With
lower oil prices slashing export revenues, the International
Monetary Fund forecasts growth of 4.8 per cent this year, about
half the average of the past 15 years.
Buhari, a 72-year-old former military ruler, is seeking to unseat
Jonathan, 57, in what is set to be the nation’s closest election
since Nigeria ended military rule in 1999.
Standard & Poor’s downgraded the West African country on
March 20 to B+, four levels below investment grade, citing loss
of income from oil and rising political risks. Nigeria, which has
long had a reputation for endemic graft, ranked 136 of 175
countries in Transparency International’s 2014 Corruption
Perceptions Index, level with Russia and Iran.
Buhari’s APC aims to boost economic growth to 10 per cent and
increase employment by providing cheap loans to small
businesses, according to a manifesto on its website. Jonathan
said on March 12 he will sell more state companies to the
private sector if he wins and encourage oil, power and
telecommunications firms to list on the stock exchange. His
spokesman, Doyin Okupe, didn’t respond to Bloomberg’s
telephone calls and text messages seeking comment.
“We think the market may welcome a win by General Buhari,”
Siebrecht, who helps oversee $360 million of emerging-market
debt at Acadian, said in an e-mailed response to questions on
Tuesday. “Buhari is likely to be more effective than Jonathan”
at tackling corruption and Boko Haram, and managing the
government’s finances amid falling earnings from oil, he said.
Acadian joined investors including Morgan Stanley and TCW
Group Inc. in cutting exposure to Nigerian assets in the last
quarter of 2014. Foreign investors have reduced their holdings
of naira government bonds to 14 per cent of the total from as
much as 27 per cent in 2012, according to Standard Chartered
Plc. Outflows from the equity market were the highest in
November since at least 2012.
“If the government had saved substantially during the period of
high oil prices, the nation would have had buffers to cushion the
slide in the naira and by extension the stock market,” Sewa
Wusu, head of research at Sterling Capital Markets Ltd, said by
phone from Lagos on March 20.
The main problem for investors remains the naira, which has
weakened 18 per cent against the dollar in the past six months.
While the currency rebounded 1.9 percent this month to 199.05
per dollar as of 12:50 p.m. in Lagos, trading restrictions
imposed by the central bank mean it is overvalued and will
probably weaken after the election, according to Investec Asset
Management.
“Investors are waiting for the election to pass, and they’re also
waiting for the naira to devalue,” Joseph Rohm, a money
manager at Investec, which oversees $107 billion, said by
phone from Cape Town on March 20. “Once you see the naira
devalue further, you’ll see foreign portfolio flows back into
Nigeria again.”
Forward prices imply the naira will weaken to 244 against the
dollar in six months and 261 in a year, according to data
compiled by Bloomberg.
Nigerian stocks trade at 7.9 times forward earnings, the lowest
level among African bourses tracked by Bloomberg. They will
probably rally whoever wins the election, but will be more
buoyant if Jonathan is voted out, according to Lanre Buluro,
head of research at Lagos-based Primera Africa.
“If Buhari comes in we believe the rally will be much more
sustained,” said Buluro. “It would be a breath of fresh air. The
country’s been ruled by the same party for 16 years.”