The markets and capital flows in Buhari’s 2nd Term

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Although an opposition victory would have been greeted by a probable knee-jerk excitement, which would have buoyed sentiment in the interim, the reelection of President Buhari portends a stable outlook for the economy and the financial market over the next 3 years. Specifically, GDP growth should sustain a gradual uptick, rising from 2.0% to 3.5% over his tenor.

The inflation rate is likely to ease to a high single digit, and interest rate should revert to its long term 12%. Finally, foreign exchange will stay relatively stable but may weaken over the period, considering its historical ‘step’ trajectory.

Consequently, we foresee increased foreign capital inflow, with Portfolio Funds (FPIs) taking a major share relative to Foreign Direct Investments (FDIs). This will support FX liquidity, with the Investors and Exporters window expected to continue to play a key role in ensuring currency market stability. Nevertheless, the multiple exchange rate environment may limit the inflow of FDIs, amid other concerns on regulations, fiscal/debt sustainability,
and challenges in the operating environment.
Accordingly, we expect the yield on government instruments to moderate sharply in the short to medium term while sentiment for equities would improve as investors revert to fundamental drivers of stock market performance rather than political uncertainties
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