3. Nigeria's delayed election looks like chaos — or opportunity
A surprise delay in Nigeria's presidential election has some asset managers seeing dollar signs — and in some cases naira signs, writes Reuters' Karin Strohecker.
Why it matters: "Lured by a rekindled appetite for emerging markets and an upbeat oil price outlook, foreign investors have recently raised exposure to Nigeria," Strohecker writes, noting pickups in both Nigerian equities and fixed income since the start of the year, according to flow tracker EPFR.
- "The delay adds to uncertainty for investors, who have endured a wild ride in the West African country: The 2014 oil price crash, and election in 2015 followed by currency controls and dollar shortages that tipped the oil-exporting economy into recession in the same year, its first in more than two decades. Its bonds got ejected from key indexes."
The announcement the election for 84 million registered voters would be rescheduled came days after foreign investors piled into Nigerian stocks and bonds, betting on a smooth election run.
- But rather than retreating from Nigeria, some investors say this is a buying opportunity.
"This is a deeply unloved market whether measured by overall market volumes, foreign participation, valuation relative to history, or performance versus frontier or oil-exporter peers," said Hasnain Malik at Exotix Capital. "That level of despair usually means opportunity."
"Eurobond valuations still look attractive as yields are likely to remain anchored regardless of outcome and the election means we are unlikely to get issuance until 3Q," said Diana Amoa, emerging market debt portfolio manager at JPMorgan Asset Management.
Going deeper: Asset managers aren't just looking at Nigeria's hard currency-denominated debt, which has long been a favorite for risk-taking investors (and has outperformed both broad emerging market sovereign debt and African peers, returning around 10% year-to-date).
They're also snapping up Treasury bills denominated in Nigeria's local naira currency, which has been one of the most volatile on earth for years.
- "We continue to like the T-bill trade as it’s an attractive carry play on oil," said Kevin Daly, investment director at Aberdeen Standard Investments in London.
Of note: Vetiva Capital predicted the naira will see a devaluation of 7% in 2019. It's one of presidential contender Atiku Abubakar's policy proposals.
"It is like picking up pennies in front of a steam roller," Capitulum Asset Management's Lutz Roehmeyer told Reuters of buying the local currency bonds. "You pick up a lot of pennies, but the losses are huge if the steamroller gets you."