In normal and volatile times, it is always important to maintain an investment portfolio that is diversified across currencies. We normally recommend that at least 20% of an investor’s portfolio should be in foreign currency. An investor’s objective could be to hedge against a potential devaluation of the Naira or earn real returns on investments, given limited high yielding local currency investment options. The Legacy USD Bond Fund (LUBF) can assist investors to achieve both goals. The LUBF is a mutual fund, registered with the Securities and Exchange Commission, Nigeria. The Fund’s primary objective is to generate stable income over the long-term. With a minimum of US$1,801.20, investors will gain exposure to Sovereign and Corporate US Dollar Eurobonds issued by the Nigerian government and Nigerian corporates. Also, once an investment has been made, the investor can monitor the value of the investment by clicking here. Please see Product Focus below for further details.

Dip in crude oil price; perpetuating the concerns of a frail economy

The Brent futures traded at US$72.81 per barrel on 26 November 2021. According to Reuters, the dip in price of BRENT was driven by concerns around a surplus in 1Q 2022 following the uptick in the number of countries that are instituting lockdown measures on the back of the new COVID-19 omicron variant. The fourth wave of the virus is gathering momentum across the world. The attendant implication on the Nigerian economy is also becoming a cause for concern, as 2022 approaches.

Recently, the trend of consumer prices following the surge in the global cost of energy created the need for supply intervention by Organization of Petroleum Exporting Countries (OPEC). Consequently, the United States of America, the United Kingdom, India, China etc. tried coercing OPEC to improve the supply of the commodity. The expectation was for a supply increase that would outweigh demand and moderate rising energy costs. Following OPEC’s reluctance, however, the countries threatened the injection of their reserves to create a supply glut in the global oil market.

Recall that supply from OPEC remains short of allotted quota by 700,000bpd, with Nations like Nigeria leading among countries that have failed to meet their supply target. The Nigerian case which accounted for an average of 44.27m bpd is an offshoot of weakening infrastructure and difficulty in restarting oil facilities. According to the Chief Executive Officer of the Nigerian Upstream Regulatory Commission (NURC), the priority is to improve production from the current 1.4mbpd to 2.4mbpd in the coming months.

Based on these issues, the forecast for the international price of crude oil going into 2022 appears biased towards a decline, which becomes a major concern for Nigeria given the concentration of crude oil proceed in its export earnings, the impact on reserves and the management of FX supply towards exchange rate stability. Though many issues around the new variant remain unclear, we believe a fourth wave, if not nipped in the bud might be a serious concern for the overall economic outlook in 2022.

• FX: Last week, the Naira traded at ₦414.33/US$ from ₦414.11/US$, in the interbank market.
• Bonds: In the secondary market for Federal Government of Nigeria (FGN) bonds, yields increased across most maturities. The yield on the 3-yr FGN bond decreased by 9 basis points, to 9.33%. Elsewhere, that on the 30-yr FGN bond increased by 9 basis points, to 13.29%. Indicative yields on US Dollar Eurobonds issued by Nigerian entities were between 2.67% and 9.27%, depending on maturity.
• Oil: The price of Brent decreased by 7.82%, from the previous week’s closing price of US$78.89bbl to US$72.72bbl
• Equities: Last week, the NSE All-Share index rose by 0.25%. The November 2021 Year-to-date return was 7.54%. The Consumer Goods sector advanced by 1.51%, on average. Honeywell gained 16.81%, while UACN lost 6.54%. For the Brewers, Guinness increased by 0.27%, while Nigerian Breweries decreased by 8.82%. The Industrial Goods sector was unchanged, on average. There was no gainer. Dangote Cement, BUA Cement and Lafarge Africa traded flat. The NSE Banking sector lost 0.05%, on average. First Bank increased by 3.90%, while Stanbic decreased by 2.56%. In the Agriculture sector, Presco and Okomu remained unchanged.