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Breakfast Report - 18 February, 2018

The Week Ahead                                                       

With just a few hours until polls were to set to open for the Presidential elections on Saturday, Professor Mahmood Yakubu, Chairman of the Independent National Electoral Commission, announced the postponement of the scheduled elections by a week to Saturday 23 February 2018. The economic consequences of this decision will be felt significantly, as what was supposed to be a smooth process is now mired in lengthened uncertainty and controversy, thereby shaking investor confidence and somewhat eroding the renewed interest from both foreign and domestic investors. We note that the Nigerian equity market had been on a gaining streak, advancing 7.1% from the end of January until last Friday with foreign investor participation particularly stronger amid an observed surge in inflows to the I&E FX window. We expect the postponement to directly lead to a reversal in the market with jittery investors quickly withdrawing from the market while others wait on the sidelines. While we expect investors to seek haven in short-term instruments in the fixed income market, activity on the long end will be more tepid. Away from the capital markets, the effect on the wider economy also cannot be understated due to the disruption to key sectors of the economy including Maritime, Aviation, and Oil & Gas.                                                   

Equity: In its fourth positive session on Friday, the Nigerian Bourse advanced 81bps d/d, contributing to a 3.76% gain w/w. Due to the postponement of the elections, we foresee a downturn in investor confidence and expect to see sell-offs in the market.                                                

Stock Watch: LIVESTOCK posted strong gains last week, appreciating 44% after green closes in four out of five sessions. The stock gained 9% on Friday to close at ₦0.72, trading at its year-high price with a year-to date return of 47%.                                                   

Fixed Income: With the DMO scheduled to hold a bond auction this week, we foresee a tepid market in the bond space, as the postponement of elections has caused a drop in investor confidence. However, short-term yields may also decline as investors hold off bets and seek solace in the short-term.