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$1,214.20, 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.

Brent price on the rise

Brent oil price passed US$100/bbl for the first time since 2014 as a worsening of the Russian-Ukraine crisis continues to spark fears of a disruption to the region’s energy exports. Russia is a key supplier of energy to global customers, with Europe relying on the nation for about a quarter of its oil supplies. The oil market has been relatively strained as oil supplies around the world continue to lag the strong recovery in demand from the pandemic. The OPEC+ coalition is also struggling to restore production quickly enough. Beyond higher oil prices, the Russian-Ukraine crisis will likely result in an increase in prices of other commodities, such as wheat, CPO and fertilisers.

Theoretically, the continued uptrend in crude oil prices, a major source of foreign exchange to the country, suggests FX accretion. However, the perennial issue of terminal shutdowns, vandalism and thefts continue to fuel sub-optimal oil output despite the relaxation of OPEC+ production agreements. Average daily oil production for the fourth quarter of 2021 was 1.50mbpd, lower than the third quarter 2021 production volume of 1.57mbpd and news reports point to still lower production in January. Meanwhile, OPEC raised Nigeria’s production to 1.66mbpd in December 2021. The uninspiring output has been largely due to crude oil terminal maintenance, shutdown, and reduced investments. The real growth of the oil sector was -8.30% y/y in 2021 compared with -8.89%, while the sector contributed 7.24% to real GDP in 2021.

We project crude oil production (including condensates) to reach 1.75mb/d in 2022. While this is an improvement from 2021 levels, it still lags the 5-year average of 1.85mb/d. We expect the continued elevated crude oil price, coupled with the passage of the PIB, to incentivize drilling activities. Beyond this, we expect the commencement of 160,000 Amukpe-Escravos export terminals in 2H 2022 to support crude oil production. This makes us forecast the oil sector may return to growth in 2H 2022. However, we project the FX reserves to deplete to US$35.00 billion by the end of 2022, translating to goods and services import cover of 5.4x. Though there are speculations that the government may return to the Eurobond market in the year, we believe the external financing conditions are not favourable due to the gradual global interest rate normalisation and lower liquidity.

• FX: Last week, the Naira traded at ₦418.41/US$ from ₦417.83/US$, in the interbank market.
• Bonds: In the secondary market for Federal Government of Nigeria (FGN) bonds, yields decreased across all maturities. The yields on the 3-yr FGN bond and 30-yr FGN bond decreased by 4 basis points (to 8.22%), and by 3 basis points (to 12.95%), respectively. Indicative yields on US Dollar Eurobonds issued by Nigerian entities were between 2.55% and 10.06%, depending on maturity.
• Oil:The price of Brent decreased by 0.95%, from the previous week’s closing price of US$94.44bbl to US$93.54bbl.
• Equities: Last week, the NSE All-Share index lost 0.13%. The February 2022 Year-to-date return was 10.36%. The Consumer Goods sector advanced by 5.88%, on average. Honeywell increased by 14.86%, while BUA Foods decreased by 0.65%. For the Brewers, Guinness and Nigerian Breweries rose by 15.70% and 0.10%, respectively. The Industrial Goods sector declined by 0.59%, on average. There was no gainer. Lafarge Africa lost 1.31%. The NSE Banking sector inched higher by 0.02%, on average. Fidelity advanced by 3.07%, while UBA declined by 1.72%. In the Agriculture sector, Presco and Okomu were unchanged.