Election seasons in Nigeria are quite intense. Political parties are looking to either retain or takeover power, the citizenry is fired up with political happenings, the economy is shoved to the back burner, the dollar is the preferred currency, foreign investors stay clear of Nigerian assets etc. 

We will look at how these trends affect different assets.

The Stock Market

The stock market is inextricably linked to the economy. No matter how fundamentally strong the companies listed on an exchange are, if the economy is bad, investors stay away from such an exchange. The Nigerian stock market boomed between 2000 and 2007.

The establishment of the Debt Management Office (DMO) in the year 2000, opened the Nigerian investment terrain and from 2000 to 2007, the Nigerian Stock market was on a bullish run. The bull run came to an end during the financial crisis of 2008/2009. 

The financial crisis exposed some of the unethical practices in the stock market at the time. In correcting this, the stock market became more reflective of the happenings in the economy. And so, in the election season of 2014/2015 and 2018/2019, the stock market dipped. The political tensions in these seasons and the failure of the economy to live up to expectations turned investors' sentiment negative.

The first half of 2022 was positive for the stock market as it gained 21% in the period. 

The financial performance of blue-chip companies listed on the exchange accounts for some of the gains we’ve seen in the market this year. The market has however been tanking since the central bank started raising interest rates. This together with election jitters, we expect will turn the market bearish in 2022. The outcome of the elections and the policy direction of the new government in 2023 will determine the tone of the stock market in 2023.

Debt Instruments

Since the establishment of the DMO, Nigerian debt instruments have been a source of foreign exchange. With an average interest rate of 10% in short-term instruments like treasury bills, Foreign Portfolio Investors (FPIs) were attracted to Nigerian debt instruments. 

The trend has been an exit of FPIs in pre-election and election years. The fear of political instability during elections force FPIs to exit Nigerian financial markets. The fixed income market is however structured such that when investors exit the market and fixed income instruments like bonds and treasury bills start to trade at a discount, the yields on such instruments begin to rise. 

Real Estate

Real estate is an asset that is always in demand and though its price tag makes it a high-ticket asset for most retail investors, the real estate industry in Nigeria has been on an upward trajectory. The sector recorded a growth of 4.4% in Q1 2022 compared to 2.6% in Q4 2021.

In a bid to woo its citizens for votes, the incumbent government in the build-up to the election usually embark on new infrastructural projects and try as much as possible to complete ongoing projects. At the beginning of this week, the Minister of Works & Housing, Mr. Babatunde Raji Fashola promised the Lagos-Ibadan expressway will be completed by the end of 2022. The infrastructural development that takes place in election season props up the value of real estate properties across key cities in Nigeria.

Investors with liquid capital can take advantage of the real estate sell-off that happens in election season. 

Politicians in trying to raise funds for campaigns, dispose off their real estate properties. We saw this happen in the 2014/2015 election season. These transactions though private, present investment opportunities for investors with liquid capital.

How should I invest in this season?

As with every season and economic cycle, there are always opportunities. Election season in Nigeria gives investors the opportunity to invest in different assets at a discount.

The doldrums in the stock market in election seasons give investors an opportunity to invest in companies with strong fundamentals at low prices. One of the advantages of investing in stocks is that companies pay dividends, dividends give investors an opportunity to earn passive income from their investment in stocks even when the market is down.

The Naira is usually a victim of the Nigerian elections in 2014/2015 it dipped by 7% from N185/$ at the end of 2014 to N197/$ in 2015. In 2018/2019, it was stable at N360/$ as the CBN maintained liquidity in the foreign exchange market. In 2022/2023, the naira has been on a downward spiral. This makes a case for dollar-denominated assets, as they help preserve and grow the value of your investment portfolio.  

Investors can also take advantage of the opportunities in the fixed income and real estate market.