Could Nigeria Stocks, Down 32%, Rally With A Muslim-Christian Ballot?

The crowded Balogun market, Lagos 

Investors in Nigeria have witnessed a roughly 7% drop in the country’s equities this month in advance of Wednesday’s primary elections. The opposition ballot is the one to watch, as incumbent President Goodluck Jonathan will be the sole candidate for the ruling People’s Democratic Party (PDP). Analyst Manji Cheto at Teneo Intelligence writes that there is a high likelihood of a split in the main opposition party, the All Progressive Congress Party(APC), after primary votes are tallied:

“The two men who will decide the fate of the APC will be former military head of state Muhammadu Buhari (tipped as the favorite to win) and ex-vice president Atiku Abubakar (the dark horse). Buhari enjoys more support at APC grassroots than any of the other candidates, thanks to his reputation as an incorruptible leader. However, he is far less affluent than the other candidates … a key weakness in an intra-party contest in which wealth is often a critical determinant … (the APC has 10,000 delegates). Atiku, on the other hand, has lost primary elections twice … and has the deep pockets to ‘buy influence’. Also, Atiku has proven himself to be the most articulate candidate when it comes to laying out plans for his government, making him a stand-out candidate. These two factors could help him spring an eleventh-hour surprise on Buhari….

The threat to Jonathan will also likely intensify if the APC manages to select a joint presidential-vice presidential ticket to reflect a balance of ‘Muslim-north’ and ’Christian-south’ … The APC has tried to play down this issue, dismissing this as incongruent with a maturing democracy. And while educated middle-class voters may agree with this view, poor working class Nigerians (who constitute the larger proportion of voters and are the most likely group to have a higher turn-out on polling day) are not likely to be swayed.”

The Global X Nigeria Index ETF (NGE) is down 2.2% today, down 7% this month, and off by 32% this year, while the Market Vectors Africa Index ETF (AFK) is down 1.5% today, 5.4% this month and nearly 13% this year. That compares to a 1.4% drop today in the iShares MSCI Emerging Markets ETF (EEM), which is down nearly 3% this month and 3.7% this year.

The top holdings in the Nigeria fund, a beer purveyor and two banks, account for more than one third of assets: Nigerian Breweries, Guaranty Trust Bank and Zenith Bank. The drop in oil prices in recent months poses significantly greater risk for Nigeria’s market and economy. See our recent post, “OPEC Post-Mortem: Clear, Present Danger in Nigeria.”

This article was written by DIMITRA DeFOTIS For Wall Street Journal