The NASS Polls and Implications for the Markets




Monday, April 11, 2011, Vetiva Research
NASS Polls Landed Safely: Inference for the Markets!  
Prominent Themes

Politics and Economics
Following the National Assembly Elections held on Saturday (April 9), our assertion of relative calmness may be justified. Despite the haul (intermittent postponements – earlier scheduled to hold on April 2, later postponed to April 4, and finally April 9), the results of the polls landed safely with relative public acceptance of outcomes. Whilst political tensions are historically moderate over the Legislative seats (relative to the Presidential and Gubernatorial positions), we believe its outcome is a sufficient leading indicator for the remaining elections, especially as all stakeholders take the outcome as a benchmark for upcoming polls. Accolades from both domestic and international observers attest to our opinion of a maturing democracy and electorate psychology in Nigeria. Hence, in this note, we further spell-out our views on the likely fall-outs of the upcoming elections and expected impacts on the economy and markets.

Our screen for Alpha returns
Relying on our macro prognosis on the election outcome and implications on the economy, we believe that early positioning of portfolios will pay-off. Hence, we screen for alpha returns within the liquid investment windows. In an environment of rising interest rates, fixed income portfolios require strategic positioning to avoid missing the rally. The currently high yield environment and political risk signal comfortable safety for conservative funds/investors as the Value at Risk (VaR) remains within manageable thresholds.

Searching through the equities market, we continue to see fundamental upsides in the banking basket. Nonetheless, we have preference for strong names with attractive return upsides in terms of dividend yield and capital gain potentials. At current market pricing, we also like some non-financials, particularly the big-wigs with attractive fundamentals and trading multiples. We believe the large-caps will hold the ace in near term as we expect retail investors’ appetite to remain relatively weak over the year, thus, limiting movements in small cap equities.  
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