Paul Wallace and Emele Onu Lagos
As former Nigerian military ruler Muhammadu Buhari leads the presidential race against President Goodluck Jonathan, analysts are preparing for several scenarios.
Nigerian dollar bonds advanced for nine consecutive days, with yields dropping to three-month lows. Stocks among the cheapest in Africa rallied for seven days, paring losses this quarter to 10 percent. The election is a key test of stability in Africa’s largest oil producer.
Bullish to neutral: Buhari wins, Jonathan accepts defeat.
“The market will react positively to a Buhari win,” Kunle Ezun, an analyst at Ecobank Transnational in Lagos, said on Monday. “It will bring forth positive sentiment. A lot of people believe he is going to fight corruption, eliminate wastages and strengthen the economy. These are factors that boost investor confidence and very important for building the market.”
An outright victory by Buhari “could be the catalyst for a return of confidence”, Nicholas Spiro, the managing director of Spiro Sovereign Strategy in London, said. “Everything hinges on whether the losing candidate concedes defeat and whether the democratic process is seen to be upheld.”
The most important thing for “markets is that there is a peaceful transition of power”, Charles Robertson, the chief economist at Renaissance Capital, said in London.
There is a risk that the main oil-producing regions respond to a Buhari victory with violence, according to Francois Conradie, a political analyst at NKC Independent Economists in Paarl. “If Buhari wins, we expect to see the most trouble in the Delta and in the northern states currently controlled” by Jonathan’s ruling People’s Democratic Party, he said in a note on March 27.
Neutral to bearish: Jonathan wins; results are contested.
“If Buhari loses, all hell could break lose,” Spiro said. “The stakes are extremely high. This is the first time when a political challenger looks like he’s going to pull off a fairly convincing victory.”
The peaceful conclusions of the elections would boost markets, Ezun said. “However, confidence will be slow to return under a Jonathan win,” he said. “He is seen not able to provide the right policy framework to deal with the challenges of the market.”
Bearish: Run-off elections or violence.
“A re-run will extend the political uncertainty of the market,” Ecobank’s Ezun said. “The incumbent will want to do everything to win, which will increase the chances for post- election violence. It will extend the time it will take for a winner to emerge thereby increasing tension. The impact on the market will be very negative.”
A tight election result accompanied by increased violence would deter investors from returning to Nigeria, RenCap’s Robertson said. “Most investors are already underweight Nigeria because of the fall in the oil price,” he said.
A run-off was the last thing Nigeria needs, said Spiro. “Nigeria needs post-election uncertainty like it needs a hole in the head,” he said.
“It’s one more layer of risk and a fairly major one at that. Markets long for a clear-cut verdict.” – Bloomberg