Nigeria Stocks to Climb on Elections, Egypt, RenCap Says

Stocks in Nigeria are set to rebound as elections next month are likely to be more credible than the previous poll and as the re-opening of Egypt’s bourse draws inflows to Africa funds, Renaissance Capital said.

“We recommend positioning ahead of this rebound in the market after April, even though the ride may not be a smooth one,” said an e-mailed note by analysts Yvonne Mhango and Olaleye Adekeye today.

There is a “strong likelihood that the 2011 elections will be significantly more credible than those of 2007,” they said, noting that the government had spent an estimated $585 million on voter registration.

More than 50 people have been killed in political violence in the West African nation since July, Amnesty International said in a report today. President Goodluck Jonathan, a southern Christian who is the candidate of the ruling People’s Democratic Party, faces two main challengers: Muhammadu Buhari, a northern Muslim and former military ruler representing the Congress for Progressive Change party, and Nuhu Ribadu, the former head of the country’s anti-graft agency and candidate of the Action Congress of Nigeria.

The Nigeria Stock Exchange’s All Share Index dropped 1.5 percent to 23,982.48 by 1:41 p.m. in Lagos, taking its decline this week to 6.3 percent, the biggest five-day slump in a year.

Dollar Bonds

The nation’s 6.75 percent dollar bonds due January 2021 gained for a third day, reducing the yield by 1 basis point, or 0.01 percentage point, to 6.828 percent. Yields may rise “on the back of the political noise,” the analysts wrote.

“We recommend picking up the bond at a lower price, with the anticipation of a yield compression post the completion of the elections,” they wrote.

Nigeria’s currency, the naira, “should see the naira begin to stabilize and retrace” as the cessation of election-related spending after the poll should result in a drop in demand for dollars, easing depreciation pressure, Mhango wrote in a separate note.

The naira has depreciated 2.8 percent to 150.415 per dollar this year, compared with a 1 percent gain in Kazakhstan’s tenge and 7.2 percent advance in Russia’s ruble, currencies of its oil-exporting peers, Renaissance said.

“While we acknowledge that the official exchange rate has diverged significantly from the budget exchange rate of 150 naira per dollar, we maintain our view that fundamentals do not support the devaluation of the naira,” the analysts wrote.

A current-account surplus, estimated at 7 percent of 2010 gross domestic product, implies capital inflows aren’t required to finance it, while a $3 billion recovering in reserves to $35.2 billion as of March 16 supports the currency, they wrote.

To contact the reporter on this story: Jason McLure in Accra on jmclure@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net