Early 'Buhari effect': Tough talking general now overseeing Nigeria's best stock rally

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Country's market has underperformed almost all equity markets in Africa since Jonathan took office in May 2010

MUHAMMADU Buhari won the race to lead Africa’s biggest economy by talking tough. The former Nigerian military ruler now faces the challenge of persuading investors he can assemble the right team to put those words into action.

Nigerian stocks were the world’s best performers over the five days through Tuesday. At the end of February, they were global laggards. Incumbent President Goodluck Jonathan conceded defeat on Tuesday, marking the first power shift since army rule ended in 1999. Further investment gains hinge on who features in Buhari’s government, according to Charles Robertson, chief economist at Renaissance Capital Ltd.

“The difficulty of an opposition party taking over in most countries, especially after this long, is that they haven’t necessarily got experience running anything,” he said by phone from London. “The most important thing for the markets is that there is a peaceful transition of power.”

If measured by markets, Buhari, 72, who built a reputation among his backers as a ruler who cracked down on corruption and crime after seizing power in a 1983 coup, doesn’t have big shoes to fill. Stocks have underperformed almost all equity markets in Africa since Jonathan took office in May 2010, the currency in February plummeted to a record low, and dollar investors were set to lose more money in naira debt last quarter than anywhere else on the continent.

Campaign pledges
A retired major general who lost three previous elections, Buhari pledged on the campaign trail to clamp down on corruption, boost average annual growth to 10% and create at least 1 million jobs a year. Buhari won 52.4% of votes cast in all 36 states and the Federal Capital Territory in Africa’s biggest oil producer, according to tallies by the electoral authorities. Jonathan received 43.7% in the March 28-29 election.

The new government also faces the task of ending a six- year-old war against the Islamist militant group Boko Haram that’s killed more than 13,000 people and restoring investor confidence in an economy that’s reeling from a more than 50% drop in the price of oil, its main export, since June. Buhari will also need to sway detractors who say his government was remembered for human rights abuses, with hundreds of politicians, businessmen and journalists jailed.

“The way the markets will react will depend on how the loser behaves,” Ayodele Salami, who oversees about $200 million of Nigerian equities as chief investment officer of London-based Duet Asset Management, said by phone on Tuesday. “If we were to see incidences of civil unrest then you might see another sell- off.”

Still the worst performer
Yields on the nation’s $500 million of dollar bonds due July 2023 fell nine basis points to 6.11% by 8:06 a.m. in London, the lowest level since Dec. 9. Rates on the notes dropped 27 basis points on Tuesday, falling below those of Kenya’s $2 billion of debt securities due June 2014 for the first time since Dec. 11, according to data compiled by Bloomberg.

The Nigerian Stock Exchange Index rose to the highest level since January 6 on Tuesday, before the final results were announced, paring first-quarter losses to 8.4%, still the worst performer among 14 African indexes tracked by Bloomberg. The gauge is trading at 8.2 times estimated earnings, the lowest on the continent after Zimbabwe.

“We’ve already positioned ourselves and we have Nigeria in our funds,” Sven Richter, who oversees more than $260 million as the Johannesburg-based head of frontier markets at Renaissance Asset Management, said by phone. “We’re waiting for other investors to realize just how cheap it really is and to actually come in.”

Market driven
With oil providing two-thirds of government revenue and 90% of foreign income, the commodity’s decline threatens the economy, with the International Monetary Fund forecasting growth will slow to 4.8% this year, about half the average of the past 15 years. The local currency has dropped 18% against the dollar over the past six months, the steepest decline among 24 African currencies tracked by Bloomberg.

Not everyone will be overwhelmed by Buhari’s win, because his economic policies are unclear, David Adonri, chief executive officer of Lagos-based Lambeth Trust and Investment Co. Ltd., said by phone from Lagos on Monday.

Investors want a “market-driven” economy, he said. “It is not clear how Buhari is going to promote that.”

The naira is less of a worry to Renaissance’s Richter in the wake of its decline and steps by the central bank to reorganize foreign-currency trading. The currency gained 0.1% to 199.05 per dollar by 8:11 a.m. in Lagos.

The naira has mostly traded in a range of 198 to 200 per dollar since mid-February when the central bank scrapped twice- weekly foreign-exchange auctions at which the naira was sold to banks at a subsidised rate in a band that varied a maximum of 5% on either side of 168. That effectively devalued the currency for the second time in three months as the regulator allowed the naira’s exchange rate to be determined only in the openly traded interbank market, rather than a pegged value at the sales.

“The currency could come down a little bit, but you’ll find that it will find a much more stable level,” Richter said. “That will actually create a lot more confidence in the country going ahead.”

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