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Investors jostle for dollar assets as returns hit 20%



Many investors are scrambling for dollar assets which returned average of 20 per cent last year, as against seven per cent returns by equities and savings.

So far in the year, net capital gains by investors in Nigerian equities have risen to N2.38 trillion as investors target dividend recommendations by major quoted companies to increase their stakes.

Despite the prospect of good yields in equities, many investors are scrambling for Dollar Funds offered by many investment companies, as they are considered better investment option given the 2021 performance.

The Dollar funds are, however, limited by regulatory policy set by the Central Bank of Nigeria (CBN). For instance, foreign assets investment policy set by the CBN requires that only dollar inflows  from offshore accounts, and not locally sourced foreign currency can be invested in dollar assets.

Report by Agusto & Co, a credit rating agency, said that last year, savers gained on average, a seven per cent return on one-year Federal Government of Nigeria (FGN)  securities like bonds and Treasury Bills, but those who went into US Dollar investments, earned a 20 per cent return as exchange rates moved from N470/$1 to N564/$1 in the parallel market.

Head of Consulting at Agusto & Co, Jimi Ogbobine, said despite high returns in saving or investing dollars funds, there are operational issues that limit local investors from entering the space.

“There are alternatives to dollar investment which investors could work out with their asset managers to get good returns on their investments in local funds and equities,” he said.

In emailed note to investors, Head, Equities, FBNQuest Capital, Olubunmi Asaolu, said the All Share Index (ASI) gained over 6.1 per cent last year, following the prior year’s 50 per cent increase, thus marking the third gain in eight years

“The market continued to benefit from the positive impact of the economy’s re-opening as the authorities eased lockdown measures implemented to contain the spread of COVID-19.”

“Domestic investors were prominent, with visible institutional and retail investor activity in response to encouraging earnings reports across several sectors. The easing of restrictions in 2021 improved corporate performances as the macroeconomic environment stabilised,” he said.

According to Asaolu, offshore investors remained lukewarm last year, unlike the previous year when small-to-mid cap stocks boosted the market’s performance.

“Excluding banks, performances were impressive across the board. Palm oil, food and beverage, oil and gas, brewers, and telecoms, all posted gains and outperformed the market. The home and personal care group (within the fast-moving consumer goods sector) and cement sectors, went up 1.4 per cent and +5.7 per cent, respectively, underperformed the All Share Index, while banks decreased -1.0 per cent on average,” he said.

Analysing how the equities performed, Asaolu said in contrast to other large banks, FBN Holdings  gained 60.8 per cent following an increase in the stake of a major shareholder in fourth quarter.

Other notable gains were Union Bank (not covered, 13.1 per cent) and Access (7.7 per cent). Union Bank shares surged following Titan Trust Bank announcement that it was acquiring a majority stake in late December last year.

“For the non-banks, their performance was good. The palm oil sector was the best performer across our coverage universe, gaining 39.9 per cent on average. Okomu (56 per cent) and Presco (23.7 per cent) benefited from a rise in global commodity prices which offset weaker unit volume sales. Palm oil prices moved up due to a shortfall in expected supply and a recovery in global demand,” Asaolu said.

He said the technology sector continued to benefit from the pandemic due to the shift to remote working. MTN Nigeria (7.1 per cent) and Airtel (12.1 per cent) were beneficiaries. In 2021, both names gained 70 per cent and 197 per cent, respectively. Offshore investors had supported Airtel’s performance in 2020.

Other notable performances include the food companies (35.1 per cent), oil and gas names (23.6 per cent), and the brewers (23.3 per cent). UACN and Flour Mills of Nigeria (FMN) were the best-performing stocks under our coverage among the food companies.

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US stocks suffer biggest daily drop in almost two years



US stocks posted the biggest daily drop in almost two years as investors assess the impact of higher prices on earnings and prospects for monetary policy tightening on economic growth. The dollar and Treasuries gained amid a pickup in haven bids.

The selloff sent the S&P 500 down 4%, with the plunge in consumer shares surpassing 6%. Target Corp. tumbled more than 20% in its worst rout since 1987, after trimming its profit forecast due to a surge in costs. Shares of retailers from Walmart Inc. to Macy’s Inc. were caught in the downdraft. The Nasdaq 100 fell the most among major benchmarks, dropping more than 5% as growth-related tech stocks sank. Megacaps Apple Inc. and Inc. slid at least 5%.

Treasuries rose across the board, sending the 10- and 30-year Treasury yields down as much as 11 basis points. The dollar rose against all of its Group-of-10 counterparts, except the yen and Swiss franc. Gold caught bids in the move into havens.

The benchmark S&P 500 is emerging from the longest weekly slump since 2011, but any rebounds in risk sentiment are proving fragile amid tightening monetary settings, Russia’s war in Ukraine and China’s Covid lockdowns.

In some of his most hawkish remarks to date, Federal Reserve Chair Jerome Powell said Tuesday that the US central bank will raise interest rates until there is “clear and convincing” evidence that inflation is in retreat. Chicago Fed President Charles Evans said Wednesday he sees a half-point rate increase at next month’s meeting and “probably thereafter.”

In Europe, new-vehicle sales shrank for a 10th month in a row as the industry remains mired in supply-chain crises, while euro-area inflation plateaued at a record high. Meanwhile, UK inflation rose to its highest level since Margaret Thatcher was prime minister 40 years ago, adding to pressure for action from the government and central bank.

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Netflix lays off 150 employees due to slow revenue growth and business needs



Netflix is reportedly laying off nearly 150 employees in the coming days due to disappointing earnings and slow revenue growth.

According to a Variety report, the Amazon Prime Video rival might also terminate its contract with contractual contributors.

The layoffs are about 2 per cent of Netflix’s US workforce. “As we explained [in reporting Q1] earnings, our slowing revenue growth means we are also having to slow our cost growth as a company. So sadly, we are letting around 150 employees go today, mostly U.S.-based,” a Netflix spokesperson said.

The statement further revealed that the decision was primarily driven by business needs rather than individual performance. Netflix reported $7.87 billion in Q1, which was short of Wall Street’s estimates of $7.93 billion.

The report further reveals that nearly 70 part-time employees in Netflix’s animation studio will have to pack up and leave. A report by The Verge stated that about 26 contractors working on Netflix’s fan-focused Tudum website might see a termination.

“A number of agency contractors have also been impacted by the news announced this morning. We are grateful for their contributions to Netflix,” the company said.

Netflix, in its recent earnings call, revealed that it lost thousands of subscribers, which is a first for the company in over a decade.

The company expects to lose an additional 2 million in the next quarter due to the ongoing war between Russia and Ukraine. Netflix has shut shop in Russia following the country’s invasion of Ukraine.

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Dollar breaks N600/$ ceiling ahead of party’s presidential primaries



Less than two weeks to the presidential primaries of the political parties ahead of the 2023 elections, the US dollar has broken the N600/$ mark at the parallel market and set the tone for a possible uptick in the coming days.

The black market rate had traded between N570/$ and N590/$ since the beginning of the year while the Central bank of Nigeria (CBN)’s intervention at the Nigerian Autonomous Foreign Exchange (NAFEX) has kept its rate under N420/$.

With the latest slump of the naira, the arbitrage between the parallel and NAFEX, which is regarded as the official window, is now inching close to N200/$. The spread measures the deviation of the controlled official rate from the real rate of exchange, with experts calling for liberalisation of the market to enable naira to find its true value.

The World Bank and the International Monetary Fund (IMF) have also warned of the repercussions of sustaining an artificially high naira while calling on the CBN to embark on market reform.

But the CBN has maintained that Nigeria, with the current high level of importation and underperformance of the industrial sector, cannot afford to float the naira completely as the exchange rate could spill out of control.

At the Lagos street market, yesterday, naira traded between N595/$ and N600/$ band. With the presidential primaries of the two leading political parties scheduled for Abuja next weekend, there is an expectation the demand pressure has not peaked, suggesting that naira is in for a protracted pressure.

At peer-to-peer (P2P) trading platforms, the dollar has been trading above N600 in the past three weeks, which had signaled that the black market rate could break through the psychological ceiling.

With that eventually happening, naira could be on a renewed free fall.

But there is also hope that it is a season to offload warehoused hard currencies for political campaigns to possibly shore up supply.

Experts are not sure where rising demand and supply of foreign exchange would lead the naira to, but the interplay between the movements of the two variables is a key factor in predicting the value of the naira in the tense political season. Godwin Owoh, a professor of applied economics, advised Nigerians to prepare for a steeper fall of the local currency, saying partisan politics and intra-party meetings, which are highly dollarised would bring much pressure to bear.

The CBN has promised to continue to protect the naira but its ability could be constrained by the equally falling reserve. For the first time in eight months, the gross reserves dropped below N39 billion on Monday, when CBN data put the figures at N38.92 billion. Effectively, the country’s reserves have depleted by $160 billion year-to-date.

Bismarck Rewane, an economist, had projected the reserve to collapse to $32 billion in the year as he expected the CBN to spend $8 to $10 billion defending the naira, which is taking much pressure from excessive importation.

The value of Nigeria’s imports increased by 64 per cent last year to N20.84 trillion. Sadly, the value of exports increased at a slower rate – 51 per cent – to N18. 91 trillion in the same period. The falling reserves and rising imports have put the apex bank in dire straits in its efforts to continue to defend the naira.

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