Savers in dollars and naira are facing hard times to sustain their wealth after the Central Bank of Nigeria (CBN) raised policy rates to 18 per cent.
In March, the Central Bank of Nigeria (CBN)-led Monetary Policy Committee raised the monetary policy rate (MPR), which measures interest rate, from 17.5 percent to 18 per cent, as inflation peaked at 22.04 per cent.
Head of Research at Coronation Asset Management, Guy Czartoryski said global savers face miserable conditions after the Central banks hurriedly raised policy rates to combat inflation which caused prices to correct across equity and bond markets.
This, he said, was followed by inflation which corroded whatever nominal returns were left.
Then he explained that US dollar savers have opportunities they have not enjoyed for years.
“US Government bond yields are at multi-year highs. Emerging market and developing market US dollar Eurobond yields have risen substantially,” he said .
He disclosed that in cases where there is no actual risk of distress, African sovereign bond yields are attractive.
“We favour holding short-dated durations for now and taking medium and long-term durations when global market sentiment improves. This tactic means not getting the full benefit of an upturn in markets, but it reduces risk,” Czartoryski said in emailed report to investors.
He disclosed that naira fixed income savers benefit from the best conditions since 2019. The drought appears to be coming to an end, with 1-year T-bill yields edging up towards the level of inflation.
“Granted, rates are not there yet and may not actually exceed inflation this year, but conditions in the fixed-income markets have improved significantly since the Central Bank of Nigeria adopted an inflation-fighting stance last May. Investors’ money is flowing back into Money Market Mutual Funds,” he said.
“In 2023, equity valuations and bond yields are far more convincing than a year ago. At some point – it is difficult to say exactly when – global markets will anticipate the easing of policy rates and assets will start to perform again,”he said
He said the reset in valuations and yields has created opportunities though not always in the same stocks, or sectors, as were favoured before.
However, there are operational issues that limit local investors from entering the dollar funds space. For instance, foreign assets investment policy set requires that only dollar inflows from offshore accounts and not locally-sourced foreign currency can be invested in dollar asset.
Chief Investment Officer, Afrinvest Asset Management Limited, Robert Omotunde, said although there are laws within the country that prevent dollarisation of the economy to avoid putting pressure on the local currency, for investors with dollar inflows, such investment is advisable.
“It makes sense to take advantage of dollar investment opportunities for investors with dollar inflows. There are portfolios or opportunities that you can take in different asset classes. There is no over-emphasising the point that investors that are going to beat inflation, and get superlative return, need to consider diversification by currency, and United States dollar is a major currency diversification that we preach,” he said.
Despite the prospect of good yields by Nigerian equities, many investors are scrambling for dollar funds offered by many investment companies. Afrinvest Asset Management Limited introduced to the investment market, an open-ended mutual dollar fund which pays as much as 7.5 per cent interest per annum.
The fund provides a significantly higher return compared to funds kept in a domiciliary account in Nigeria or current bank account in Europe or America.
The Afrinvest Dollar Fund was created to help investors achieve income generation, capital preservation and portfolio diversification in the short to medium term. It was designed to deliver significantly higher returns and dividend will be paid twice a year. Nigerians will be able to invest in the fund with as little as $ 1,000.
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