Presidential Primaries: The inflection point...

The political theatrics in Nigeria has reached its climax. The ruling party presidential primaries will start in a few hours and either Goodluck Jonathan, the incumbent, or Abubakar Atiku, a former vice president, will emerge victorious at the primary polls. It is a sure thing that the loser of the elections will go to court to argue against the results but nothing will likely come out of it. That is Nigeria.

The Nigerian Stock Exchange has emerged as the world's best performing stock market in less than two weeks of trading in the year, garnering a mouth watering returns of 9.05%, which is close to the one year treasury bill yield of about 10% and more than the yield on two year treasury bonds of 6 - 7%. The sudden upsurge in demand for Nigerian equities can be traced to the expected spill over of the AMCON effects into the larger economy.

The volumes traded on the floor of the exchange was at its second lowest in the year following the lowest volumes on the first trading day of the year. This reduction in volumes could be due to investors who want to know the political direction of the country. While the main elections is still in April, the PDP candidate has a very high probability of becoming the next president. A win for Jonathan will signify a continuation of reforms in the current direction and this will likely consolidate the gains that have been experienced so far. A win for Atiku, will signify a change in the current economic direction, due to his strong criticisms at the way Jonathan is currently running the economy. This will likely lead to extreme volatility in the market with a bearish bias until Atiku wins (if he wins) the general election and his plans for the economy are rolled out for analysts to determine whether it is safe to invest in Nigeria or not.

Looking into my crystal ball once again and this is what I see:

"The chances of Jonathan Goodluck winning the PDP primaries are 95% and the chances that the stock market will react positively to this win is also 95%. The chances of both events occurring is therefore 90.25%. Based on this I expect the market to experience its strongest daily gain for this year tomorrow. The chances of Atiku winning the primaries are 5% and given a win for Atiku, the probability of the market being bearish is 95%. However, independently, the probability of the market being bearish is 9.75%".

Unfortunately, I don't have an Index future to buy...