Weekly Market Commentary

Global Market Update

Stronger Than Expected US Inflation Raises Concerns

US inflation in September fell to 2.4% from 2.5% in August,? slightly stronger than the 2.3% investors were expecting. This prompted a brief sell-off in equities.

Additionally, weekly jobless claims in the US rose to 258,000 from 225,000 in the previous week. The magnitude of the increase, which is the largest on a week-on-week basis since July 2021, stoked fears of a weaker US economy.

Despite the weak macro data, the S&P 500 increased by 1.1% compared to +0.2% in the previous week. In the UK, the FTSE 100 lost 0.33% from +0.5% in the past week despite the rally fuelled by positive growth data. Globally, the MSCI World Index increased by 0.3% from ?0.5% in the previous week.

What this means for you: Despite concerns about the US economy, we maintain our long-term position in the equities market as we have more optimism about the US than other markets.

Nigeria’s Market Update

Macro Update

The National Bureau of Statistics' (NBS) data on capital importation (or foreign investment) showed that $2.60 billion was imported into Nigeria for Q2 2024. This represents a 22.9% decline in capital imported from $3.34 billion in Q1 2024 but a growth of 152.8% from $1.03 billion in Q2 2023.

Foreign direct investment(FDI) accounted for only 1.2% ($29.8 million) of the total capital imported in the quarter under review, while portfolio investment accounted for 53.93% at $1.40 billion and other investments made up 44.92% ( $1.17 billion).

The hikes in the monetary policy rate have made investment in money market instruments like treasury bills more appealing to investors. However, Nigeria continues to struggle to attract foreign direct investment which has fallen from a peak of $839.7 million in Q4 2012 due to a lack of faith in the long-term prospects of Nigeria.

What this means for you: While the growth in investment compared to last year is comforting, the sharp decline relative to Q1 2024 suggests that reforms are losing steam. With sustained weakness in oil production and exports, Nigeria needs to attract foreign investment for FX liquidity. Otherwise, we can expect sustained exchange rate depreciation, which means investors need to keep their long-term portfolio outside Nigeria and hedge income and expenses from naira depreciation/inflation.

Equities Update

Negligible Gains

Nigerian stocks gained 0.1% this week compared to the decline of 1.0% in the previous week. The YTD (year-to-date) gain is at 30.5%. The oil and gas and the banking sectors gained 1.4% and 0.5% respectively, while the consumer goods and industrial goods sectors lost 1.7% and 0.1% respectively.

What this means for you: We do not like Nigerian stocks right now as long-term investors. Investing in the S&P 500 would have delivered a dollar return of 21.9% YTD and a naira return of 146.4%, which is better. Until we see a consistent trend of macroeconomic stability, which will be obvious in low inflation and stable exchange rates, we maintain an exposure to the US market.

Fixed Income Update

Mixed Yield Movement in the Fixed Income Market

The yield on the 91-day treasury bill rose to 21.9% from 21.7% in the previous week while the yield on the 182-day treasury bill declined slightly to 24.2% from 24.3%. The 365-day treasury bill yield increased to 23.6% from 22.3%.

In the bond market, yields declined to an average of 18.6% from 18.8% in the prior week.

What this means for you: The Nigerian money market instruments offer relatively high yields, which is good for saving towards short-term goals. However, considering that this yield does not fully compensate for high inflation, investors can consider dollar savings for goals beyond 6 months. You can do both with us on Ladda, a fintech app that helps you save at high returns.

FX Update

Naira Gains 1.0%

The exchange rate closed at N1,641.3 on the official market, gaining 1.0% from N1,657.9 in the prior week. Meanwhile, external reserves rose by 0.2% to $38.7 billion from $38.6 billion last week.

What this means for you: The naira continues to trade at a steady range and reduced intervention by the CBN has supported growth in external reserves. While risks of a sharp depreciation seem to be contained in the interim, the current era of negative real return suggests further depreciation. Over the medium to long-term, investors should save in foreign currency to hedge against a potential depreciation.