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Home » Why equity, naira rebound after presidential election -Chukwu
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Why equity, naira rebound after presidential election -Chukwu

Saint AugustineBy Saint AugustineApril 17, 2015No Comments3 Mins Read
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Contrary to insinuations in some quarters that the gains recorded at the capital market and the sudden strengthening of Naira against the Dollar and other major currencies immediately after the Presidential and National Assembly elections was due to the personality of the President elect, Gen. Muhammadu Buhari, the Managing Director of Cowry Asset Management Ltd., Mr. Johnson Chukwu has said that the rally had nothing to do with the personality of Gen. Buhari.

Speaking in an interview with Primetime Reporters in Lagos on Thursday, Chukwu argued that the appreciation was as a result of the acceptance of the result of the election as well as lifting of a threat of political crisis.

According to him,” basically, what happened was immediately after elections and the announcement of the Presidential election result, the equity gained and the FX market rallied. The reason for these rallies was because those investors has priced in a long period of political crisis, post election political crisis and political violence. Investors had viewed in into the pricing of equity and FX period with the thought that the country will be plunged into political crisis, when that did not happen, that automatically lifted the uncertainty and the political risks that had been ascribed to the elections”.

“So, the exit or the removal of political risks or the moderation of those risks led to investors scrambling for those shares whose prices had actually bottomed out because the pricing of the trade was based on the fact that there was going to be a political crisis. So, the absence of that political crisis means that they were greatly undervalued and investors jumped in to take advantage and subscribed. That was why the rally”.

He further observed that the same thing was applicable to foreign exchange market where said people had hedged having bought US Dollars and other foreign currencies in anticipation of political crisis so that they could actually have something to spend from when they eventually run out of the country.

“A lot of businesses had bought and transferred money outside the country in anticipation that there will be political crisis. So, that was why I said that the anticipation of long political crisis was actually built into a price that was trending before the election result. So when the result came out the way it was and the outcome was accepted, it automatically mean that those who had hedged in anticipation of political crisis will no longer have need for those ones and they have to bring back the money to the market and there was momentary over supply in the market and the demand that was triggered off by anxiety of the expected political crisis was no longer there. We had drop in demand and increase in supply”, Chukwu explained.

He however maintained that the rally was temporary as according to him, the major fact that Nigeria still have limited major source of supply adding that that slight upsurge in supply led to the appreciation of the Naira.

Asked how soon it would take the economy to fully bounce back, he said,” well, the basic fact is that nothing has materially changed in the Nigerian economic condition. We still have crude oil still trading at 56 Dollars per barrel, we still have the production of about 2 million barrels per day, we still have a reserve of about 29.79 billion. So, nothing has fundamentally changed about the economic environment. What has changed is the political environment”.

2015 Presidential Election economic Environment Foerign Exchange Market Naira-Equity Rebound
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Saint Augustine
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Saint Augustine is a seasoned freelance journalist and the chief editor of Primetime Reporters.

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