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$1,208.20, 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.

Improvement in Nigeria's capital inflows in 3Q

Analysis of the recently released data by the National Bureau of Statistics (NBS) on capital importation for 3Q 2021 revealed that the total amount of foreign investment inflows into the Nigerian economy improved by 97.7% q/q and 18.5% y/y, to US$1.73bn in 3Q 2021 from US$0.88bn in 2Q 2021 and US$1.46bn in 3Q 2020. However, year-to-date (YTD), the total foreign capital inflows as of 9M 2021 amounted to US$4.51bn, underperforming that of 9M 2020 by 47.6% y/y. Though yet to reach pre-pandemic levels, the recovery in foreign inflows has been gradual. Besides, the Nigerian market as a whole still lacks the long-awaited catalysts, such as FX clarity, improved security profile, stable government and business policies, which typically attract foreign investments.

Breakdown of the 3Q data showed that the dominant portfolio investments increased contribution to the total inflows from 63.0% in 2Q 2021 to 70.3% in 3Q 2021, leaving other investment (23.5%) and foreign direct investment (6.2%) to plug the balance. Interestingly, the increase in foreign inflows in 3Q was broad-based, benefiting majorly from the growth in portfolio investment (+120.8% q/q), trailed by an increase in other investments (+65.0% q/q) and a 38.3% q/q increase in foreign direct investment. Meanwhile, the contribution of Foreign Portfolio Investments (FPIs) remained skewed to investment in money market instruments (hot money) by foreign investors (65.4% of the FPIs in 3Q 2021). This continues to make the economy extremely vulnerable to external factors beyond the control of policymakers. Also, there was a sharp increase in bonds investment, rising by 2410.2% q/q as equity investments dipped by 33.7% q/q.

Looking ahead, we are concerned about the capital importation outlook, especially as political campaigns begin to intensify, raising political risk in the country. Besides political risk, FX repatriation will continue to undermine confidence and prevent the free flow of capital. Beyond that, the perennial inability of over 50% of the 36 states to attract capital inflows cannot be ignored, which has over time hindered inclusive investments across the country.

• FX: Last week, the Naira traded at ₦415.45/US$ from ₦424.83/US$, in the interbank market.
• Bonds:In the secondary market for Federal Government of Nigeria (FGN) bonds, the yields on the 3-yr FGN bond and 30-yr FGN bond decreased by 3 basis points, (to 9.09%), and 13bps (to 13.15%), respectively. Indicative yields on US Dollar Eurobonds issued by Nigerian entities were between 1.91% and 9.50%, depending on maturity.
• Oil: The price of Brent increased by 5.10%, from the previous week’s closing price of US$77.78bbl to US$81.75bbl.
• Equities:Last week, the NSE All-Share index advanced by 2.66%. The January 2022 Year-to-date return was 2.66%. The Consumer Goods sector gained 0.98%, on average. PZ Cussons increased by 9.84%, while Unilever decreased by 3.45%. For the Brewers, Guinness rose by 2.31%, while Nigerian Breweries fell by 4.00%, respectively. The Industrial Goods sector advanced by 2.64%, on average. Dangote Cement lost 2.72%, while Lafarge Africa gained 7.72%. The NSE Banking sector gained 0.99%, on average. First Bank advanced by 3.95%, while Fidelity declined by 1.57%. In the Agriculture sector, Presco and Okomu remained unchanged.