Navigating Offshore Sell-off

By United Capital Research

The National Bureau of Statistics (NBS) just published data on Nigerian Capital importation for Q2-2018.

According to the report, the total value of capital imported into Nigeria during the period stood at $5.5bn, representing a decline of 12.5% compared to Q1-2018, though still 2x higher than its level as at Q2-17.

Looking closely, capital inflow during the period was weighed by declines in Foreign Portfolio Investment in money market instruments (-24.3%), and foreign loans (-24.1%) – thanks to a stronger US dollar, higher US interest rates and higher Treasury yields that spooked foreign investors during the period.

The picture looks even bleaker for the remainder of 2018 considering the marked offshore sell-off that has transpired amid political jitters, tightening global financial conditions and Turkey’s woes that continue to impact emerging Markets.

In navigating this turbulence, we remain selective on bond investments; average bond yields are currently at a YTD high of 14.8% (greater than our base case of 4.6% for the equity market) and may likely inch higher as the FGN seeks to fund its 2018 budget, even as its intended $2.8bn Eurobond sale looks unlikely to be fully bided given the current investment climate.

Looking ahead, the structural reform follow-through that can put Nigeria on the path to a more sustainable, long-term growth is missing. Until then, fundamentals would continue to be driven by the trajectory of oil prices.

Modupe Gbadeyanka is a fast-rising journalist with Business Post Nigeria. Her passion for journalism is amazing. She is willing to learn more with a view to becoming one of the best pen-pushers in Nigeria. Her role models are the duo of CNN's Richard Quest and Christiane Amanpour.

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