Nigerian Bonds, Stocks Rally as Observers See Voting as Peaceful

Nigerian bonds extended a rally, sending Eurobond yields to three-month lows, and stocks rose as voting in elections went more peacefully than anticipated, spurring investors to buy assets before final results are announced.

More than three shares climbed for every one that fell on the Nigerian Stock Exchange All Share Index on Monday as observers from the European Union and Commonwealth said presidential and parliamentary elections this weekend were generally peaceful and transparent. Yields on $500 million of Nigerian dollar bonds due July 2023 fell for the eighth day to the lowest since Dec. 10.

Investors encouraged by the lack of violence are taking “early positions” in anticipation prices will rise, Ayodeji Ebo, head of research at Afrinvest West Africa Ltd. in Lagos, said by phone. “They’re trying to increase their exposure, knowing that if there’s no post-election violence the only direction for the market will be upwards.”

The election, a key test of stability in Africa’s largest oil producer, pitted President Goodluck Jonathan, 57, against a united opposition led by former military ruler Muhammadu Buhari, 72. The vote took place against the backdrop of a six-year insurgency waged by the Islamist militant group, Boko Haram, and a plunge in the price of oil, the country’s main export, which has slowed growth in Africa’s largest economy and weakened the currency.

2011 Violence

About 800 people were killed and at least 75,000 forced to flee their homes after Buhari lost elections in 2011. There was no evidence of a systematic manipulation of the process in the latest elections, an EU observer mission said in preliminary findings. Violence in Rivers state shouldn’t place the overall integrity of the election in doubt, the EU observer said.

Yields on the 2023 Eurobonds fell 4 basis points to 6.47 percent as of 4:08 p.m. in London. Rates on 489 billion naira ($2.5 billion) of bonds due March 2024 fell 37 basis points, to 15.38 percent, the lowest since Feb. 9, according to data from the Financial Markets Dealers Association.

A 1.7 percent advance in the Nigerian Stock Exchange All Share Index extended gains in equities over the past seven days to 6.3 percent to the best level since March 11. The measure is still down 10 percent this quarter, the most among African gauges tracked by Bloomberg. It is trading at 8.5 times estimated earnings, the lowest on the continent after Zimbabwe.

The naira weakened as much as 0.2 percent to 199.50 per dollar before erasing losses to trade unchanged at 199.05.

Come, Gone

“The market is reacting to the fact that the election has come and gone with little or no violence,” Pabina Yinkere, head of research at Lagos-based Vetiva Capital Management Ltd., said by phone. “It is a situation that both local and foreign investors are happy with.”

Fitch Ratings cut Nigeria’s credit-rating outlook to negative from stable on Monday, citing falling oil prices and rising political risks.

With a more than 50 percent slump since June in prices for oil, which provides two-thirds of government revenue and 90 percent of foreign income, the naira has lost 18 percent against the dollar in the past six months, the steepest decline among 24 African currencies tracked by Bloomberg.

“Political uncertainty is heightened in the context of a tightly contested presidential election and potential transition issues,” Fitch said in a statement, while affirming Nigeria’s B+ rating, three steps below investment grade. “Fiscal and external buffers have been eroded significantly as Nigeria enters a period of lower oil prices.”

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