Friday, February 13, 2015 10.00AM / Business & Markets
Will the APC win the Presidential elections? Will the PDP wrestle control of Lagos State from the incumbent? With elections five (5)weeks away, will Jega be removed given that the president said he has powers to do so but is not considering it? How will the courts decide on the many political cases before it? Will there be violence pre and post elections?
While, these matters continue to grab the headlines with passionate exchanges between stakeholders and patrons on both divides; the economy, business and financial markets have made a decision – these questions are not of immediate concern to them.
What matters is the increase in the risk and uncertainty attached to the economy; and its adjusting fundamentals for which no clear pathway is known.
Historically and from a global context, “the market has shown a tendency to rally no matter which party wins an election”. In Nigeria, we have only had a PDP win and we are yet to find out how the market would react but it would matter less if the current “blood on the street” is not curtailed. The President’s media chat on Wednesday would appear not to have changed much in that regard.
According to Jeff Bommer “… from the standpoint of stock market history, political outcomes aren’t very relevant….regardless of which side has won, the market has generally prospered for the rest of the year. And it has often excelled in the next calendar year, typically the most propitious year for stocks in what is often called the four-year presidential cycle.”
The performance on the Nigerian Market in recent times has no doubt shown us that the nexus between politics and the economy of a nation is so strong and interwoven to the extent that political decisions taken usually do have far reaching consequence on the economy, and no time more than an election period.
Since the announcement of the postponement due to security concerns, the equities, money and forex markets have gone southwards occasioned by heightened uncertainty. The market has moved beyond PANIC to a SELF-PRESERVATION mood which underscores the FLIGHT TO SAFETY currently being experienced despite the many interventions of government.
It is simply a behavioral response… drawing upon the theory of reflexivity – dealing with the circular relationships between cause and effect.
Reflexivity: The correlation between Elections and the Market
The theory of reflexivity states that investors' and traders' biases can change the fundamentals that assist in determining market prices. If you believe that the elections may not hold or that the signs are unclear to make an informed decision; you will take care by reducing your portfolio or exiting the market. If more than a few believe that too, then a ‘herd effect’ is created.
Tracking these changes or “decision influencers” can prove tricky but for a discerning mind, the trends always show up early on.
The uncertainty and drama that ensued around and about the Independent National Electoral Commission’s (INEC) postponement of Nigeria’s 2015 general elections to March 28 and April 11, 2015; saw analysts on Sunday sending out signals that there were not comfortable with the ‘environmental issues’ that must now be factored with other issues around revenue decline, exchange rate value amongst others.
By yesterday, Nigerian Stocks recorded a -6.83% and -19.39% WtD and YtD loss, respectively as at February 12, 2015, while the exchange rate at the parallel market continues to firm up against the US Dollar, trading at N210/$1 as scarcity sets. Also, the interbank market which was shut down on February 11, 2015, saw the Naira oversold at N205/$1 after resumption from a second shut down.
This dynamics further reflect that there is a high correlation between political events, the economy and the market.
Tracking the nexus between the Economy/Market and Politics
Understanding the influential effects that this could further have on Nigeria, has thus led Proshare Nigeria limited to deploy a tracker via its Economy & Politics website to analyze and present some factual basis to track the impact of political decisions on the economy and markets.
The Nigeria 2015 Election & Market Tracker specifically shows day to day political decisions and statements made, vis-à-vis the performance on the Nigerian Stock Exchange, the Interbank market and Inflation.
It should chronicle changes in the performance of the market indices such as NSEASI, Exchange Rate, Interest Rate, and other key indicators that appear to be linked to the political calendar.
As a further analytical tool, the economy and politics website which provides the Nigerian community of business decision makers with news, reviews, analysis and information on economic, politics, demographic and business trends in Nigeria; consists of up to date news and economic indicators, with reviews and resources from leading economists. In addition, the website provides an avenue to engage via its discussion forum, while you watch recent videos via an Economy & Politics Channel powered by WebTVNG
Yet again Proshare Nigeria beefs up effort to ensure information is readily available to all for intelligent decision making. Visit the Economy & Politics website and let’s know your views.
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