IR’s Message on Nigeria: Economy is falling only to rise 3

What IR can advocate is already pretty much standard. First, it must preach what is all too obvious to economists and staunch investors, that economies follow a boom bust cycle. Nigeria’s economy is currently in bust and so boom is inevitable.
IR should encourage investors to take a long view of the economy. This means that investors should keep their money long enough in this economy and that’s how they can make healthy returns on their investments.

Olusegun Aganga, Trade Minister

References can be made to the companies and success stories coming out of this economy. The phenomenal growth of the telecommunication sector for instance. MTN paid no heed to all the negative talk about the impediments of doing business here. Now they are the number one telecoms company in the country, the highest contributor to profits of the company of South African origin.
Since MTN, Econet (now Airtel,) Globacom, Etisalat and Visa Phone have dived deep into this market and are stashing handfuls of dollars.
The banking sector since liberalisation and consolidation has produced some of the most dynamic banks with subsidiaries across Sub Sahara Africa and South Africa. Some even have branches in London, France and New York. First Bank and GT Bank are in that class.
Emphasis should be made of the fact that billionaires have come out of this economy from diverse industries including telecoms; oil and gas; Banking; construction; shipping and agriculture. Africa’s richest man, Aliko Dangote is one of them with an estimated net worth of $21.6 billion as of November 2014.
IR can cast light on regulatory reforms targeted at safeguarding investments in the last couple of years. While doing this point to the country’s marked improvement in the World Bank’s Doing Business Index, which though worsened from 133 in 2011 to 170 in the 2014, is set for a leapfrog with the launch of the Corporate Affairs Commission (CAC) new on-line business registration portal. The portal would ease business registration by enabling customers to file their documents on-line without having to physically visit the commission. With the new application, customers could access and pay for the commission’s services on-line. Even international investors will be able to register their businesses from their homes, whether in US, Uk and anywhere.
Point and noise should be made by IR of the country’s recent ratings by Fitch, Standard and Poors and Moody’s who maintained their previous ratings. These should be should be ready tools to cast the economy in a good light and communicate the potential for significant ROI.
If indeed the objective to invest is to achieve high ROI then there can never be a better time to enter the market than now, IR should declare.

Skye Bank, safest bank stock on NSE-Findings

Timothy Oguntayo, CEO, Skye Bank

The safest banking stock on the Nigerian Stock Exchange (NSE) for the week ended February 27^th is the Skye Bank Stock, findings have shown. This is despite the battered stateof most stocks following the recent negative portfolio outflow from the Exchange.

The metric for determining safety by Finance Analysts is the Beta, a measure that gauges a stocks volatility or risk level. The Financial Times displays the daily beta of all quoted firms and is the source of this finding.

“In finance, the beta (β) of an investment is a measure of the risk arising from exposure to general market movements as opposed to idiosyncratic factors. The market portfolio of all investable assets has a beta of exactly 1,” says Wikipedia.

“It is the volatility, or risk, of a particular stock relative to the volatility of the entire stock market,” says wikihow.  “Beta is one of the fundamentals that stock analysts consider when choosing stocks for their portfolios, along with price-to-earnings ratio, shareholder's equity, debt-to-equity ratio, and other factors”.

The FT shows a beta of 0.84 for the Skye Bank stock on February 27^th, the lowest in the Banking Sector of the NSE indicating that it has the least volatility among banking stocks. Last Week was an improvement onthe previous week when the Bank coasted home as the second least volatile with equivalent beta figure of 0.837.

Following on the heels of Skye Bank is Eco Transnational International (ETI) with a score of 0.89 and StanbicIBTC with a score of 0.95.

Sterling Bank led the way with Banks with the highest beta with a beta of 1.89, followed by UBA with a beta of 1.76 and Diamond bank with beta of 1.7. Diamond Bank was the least volatile the week before with beta of 0.63.

FCMB had beta of 1.37; Wema Bank, 1.2; Union Bank, 1.19; GT Bank, 1.12 while Access Bank, First Bank and Zenith Bank had betas of 1.09, 1.04 and 1.02 respectively.

It would be recalled that Skye Bank recently acquired Mainstreet Bank in a little above N126 billion deal that analysts say would catapult the Bank into first tier competition once integration is complete. According to the Bank, the purchase would help cement its aspiration to play big in the retail and commercial segments of the banking business.

IR’s Message on Nigeria: Economy is falling only to rise 2

 Our argument from last week is that economies are not like dominoes that only fall and never rise; rather they exhibit a boom bust pattern. That is they rise and fall.

We then took a look at two economies that have followed that trajectory, namely Russia and Valenzuela.  We then zeroed in on Nigeria.

Diezani Allison-Madueke, Petroleum Minister

On Nigeria, we said Bust has meant more than 50 percent drop in oil prices since last year’s peak in June. Beyond the downside of the oil cycle, which are considered exogenous are other value eroding factors including poor handling of monetary controls, fears that the Boko Haram sect would further cause damage to the social system and what is generally perceived as a bungling of the electoral process as government pushes national votes from February 14 to March 28.

Giving in to these debilitating events, Naira investments took a shave in value. The natural consequence was a herd effect as foreign portfolio managers headed for the borders in a move that saw a cumulative outflow of N793.17 billion. It was the first time in three years that Foreign Portfolio Investment outflow would surpass inflow, analysts say.

But there were also other intervening factors at work in that time including the CBN’s devaluation of the naira in an attempt to defend the national currency.

So in one fell but unsavoury swoop, the economy as summed up by Oscar Oyema, head of the Nigerian bourse was such that the “bearish sentiments prevailed for most of the year as foreign investors steadily withdrew from the Nigerian market due to currency risk and the recovery of developed economies, and the effects of the US Federal Reserve tapering of its quantitative easing policy.”

In an attempt to rein in bleeding of the naira, the Central Bank got cowered in what the investment community believed was an abdication of responsibility and a clear breach of confidence, allowed the powerful bloc of money traders to suspend trading.

One possible effect this move may have is to reverse the trust of international dealers on CBNs ability to regulate that market. That the market cannot be transparent is already there for all to see.

The graveness of the CBN poor handling only sank in when JP Morgan threatened to yank Nigeria off its Government Bond Index (GBI-EM), the MSCI index of emerging market bonds, of which the country makes up 1.8 percent.
The JPMorgan Government Bond Index-Emerging Markets (GBI-EM) indices are comprehensive emerging market debt benchmarks that track local currency bonds issued by Emerging Market governments.
Thankfully, the country’s Bonds are intact in the JP Morgan index despite attracting higher and higher yields. One source remarked that is likely because that the Nigerian authorities engaged the JP Morgan team in charge of the index and attempt to prevent an exclusion from the GBI-EM.
Hopefully, the economy, our economy will not replicate the disaster of the Thai economy of the middle to late 1990s, which dragged the whole of Asia into a recession. At that time, the Thai currency collapsed amidst burgeoning foreign debt and a depleted foreign reserve. As the crisis spread, most of Southeast Asia and Japan saw slumping currencies, devalued stock markets and other asset prices, and a precipitous rise in private debt among other not so salutary effects.
As emphasised earlier, it is when the economy is on this side, the downside that champions should emerge. IR can take that lead. As I have enumerated elsewhere, there is no better time than now to be advocates of the Nigerian economy. The logic here is that it is only when the economy you operate from is healthy with a good dose of foreign investment that local corporations can thrive. Local companies make up less than 50 percent of the Nigerian Stock Exchange.


    ...to be continued