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 (LBF) 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$1,804.35, 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.

Trade deficit: a gift that keeps on giving

The Nigerian Bureau of Statistics (NBS) in its recently released trade statistics revealed that the trade deficit in the third quarter (3Q 2021) of the year rose to N3.02tn, from N1.87tn recorded as of 2Q 2021. Total trade of N13.28trn grew 10.4% q/q, from N12.08tn in 2Q, with imports of N8.15tn and exports of N5.13trn. The top three export destinations for the quarter were India (14.8%), Spain (12.2%), and Italy (8.7%). In addition, the top three export earnings were sourced from petroleum oils and oils obtained from bituminous minerals, crude (74.5%), natural gas liquefied (9.5%), and floating or submersible drilling or production platforms (3.2%). Also, imports for the period were mainly sourced from China (29.9%), India (8.7%), and the United States (7.4%), with commodities such as motor spirit ordinary (12.9%), durum wheat (Not in seeds) (3.9%), and gas Oil (2.8%) constituting the top three most significant items brought into the country.

As of 3Q 2021, the total import figure grew on both yearly and quarterly bases. We attribute this to the improved economic activities. Q/q, import grew by 17.3% to N8.15bn while there was a steeper 51.5% y/y rise in 3Q 2021 import figure compared with 3Q 2020. In addition, we believe the rise in the importation of brown sugars was aided by Central Bank of Nigeria’s (CBN) intervention in the space allowing sugar refineries with significant effort at meeting the Backward integration Plan (BIP) under the National Sugar Master Plan to access FX from the official window for importation of sugar. We also observed a significant rise in the importation of agricultural produce (21.0% q/q and 74.0% y/y), raw materials (9.1% q/q and 29.1% y/y), and solid minerals (10.9% q/q and 53.4% y/y). We note that the surge in importation of agricultural produce is not a welcome development as it does not bode well for an economy aiming at local sustenance through improved agricultural yield.

On the export end, Nigeria reported a marginal uptick q/q, up 1.0%, while the stagnant economy in 3Q 2020 provided a low base for a significant surge (71.4% y/y) to N5.13bn in Q3 2021. This aligns with our expectation, given that crude oil volume has paled in recent months, reducing the support that could have otherwise been provided by the increase in price that characterized 3Q 2021. We believe the export figures might worsen, given the current downturn in price in the international crude oil market driven by fear of another round of lockdowns amidst the threat by the United States and other non-OPEC members to inject reserves into the market. We continue to reiterate the need to diversify the country’s export basket, hence, we believe the recent activities of the Nigerian Export Promotion Council are laudable. In addition, we believe more needs to be done to improve local productivity to meet local demand and provide the needed commodities for export.

• FX: Last week, the Naira traded at ₦414.24/US$ from ₦414.33/US$, in the interbank market.
• Bonds: In the secondary market for Federal Government of Nigeria (FGN) bonds, yields decreased across most maturities. However, the yields on the 3-yr FGN bond and 30-yr FGN bond increased by 1 basis points, (to 9.34%), and 8bps (to 13.37%), respectively. Indicative yields on US Dollar Eurobonds issued by Nigerian entities were between 1.66% and 9.36%, depending on maturity.
• Oil:The price of Brent decreased by 3.91%, from the previous week’s closing price of US$72.72bbl to US$69.88bbl.
• Equities: Last week, the NSE All-Share index declined by 2.63%. The December 2021 Year-to-date return was 4.71%. The Consumer Goods sector lost 0.59%, on average. Honeywell decreased by 11.62%, while Cadbury gained 0.54%. For the Brewers, Nigerian Breweries increased by 0.97%, while Guinness decreased by 0.82%. The Industrial Goods sector declined by 0.08%, on average. BUA Cement decreased by 1.40%, while Dangote Cement and Lafarge Africa, traded flat. The NSE Banking sector lost 2.29%, on average. GTCO decreased by 3.60%. There was no gainer. In the Agriculture sector, Presco shed 1.24%, while Okomu remained unchanged.