Yesterday, financial markets panicked at the news of an unanticipated victory by Republican nominee Donald Trump in the US presidential elections. In response to Trump’s victory, which went against poll numbers, global financial markets swung red on uncertainty regarding likely policy trajectory, given controversial comments during the campaign trail by the US president-elect.
- Unrestrained US oil production to trump Bonnylight imports: In terms of impact, Trump’s call for more fossil fuel drilling, fewer environmental regulations and approval of Keystone XL pipeline, which are all geared towards complete energy independence for America, cast dark cloud over US oil imports from Nigeria in the medium to long term. To buttress on potential scale of impact, we note that despite significant scale down on its oil importation from Nigeria since the advent of shale, the US still represents the second largest export market for Nigeria (Q2 16: 16% of crude exports). Thus, increased US oil production should extend the decline in Bonny Light purchases pushing Nigeria into competition with Gulf exports for Asian markets.
- Less positive cheer for EM capital flows: The higher yields in US treasuries post the Trump election win and the flight to safety by investors should reset EM(Emerging Markets) Eurobond yields higher in secondary trading. For any fresh issues, we think currently unfavourable pricing could constrain ability to push sizable debt issues over the rest of the year. Given Nigeria’s intention to raise a Eurobond in November, the delay in coming to market earlier could yet result in more expensive pricing of Nigeria’s credit risk on issue.
- In terms of impact for Nigerian markets, following the declines in foreign participation over 2016 as dollar shortages crimp appetite for Naira assets, we see less impact on domestic equities and fixed income markets from the Trump election over the near term. Farther out, while the read-through from Trump’s campaign manifestos suggest less favourable implications for Nigeria, we note that the president-elect’s acceptance speech was unexpectedly moderate. Our key takeaway from the speech is that there could be a difference between candidate Trump and President Trump and until markets see clarity on the character which emerges to rule the US and his likely policy leanings, we see uncertainty as limiting risk appetite for EM assets.
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