I&E FX Inflows Drop to $1.98bn in November

The total capital importation through the Investors’ and Exporters’ foreign exchange window (I&E window) in November 2018 was a total of US$1.98 billion.

The amount recorded in November, according to the November monthly economic report by FSDH Merchant Bank Limited, was the lowest recorded since August 2017.

This, the Head of Research and Strategy at FSDH Merchant Bank Limited, Mr. Ayodele Akinwunmi, while throwing more light on the report, attributed the development to an indication of foreign investors’ careful approach to investing in Nigeria.

According to Akinwunmi, the CBN remained the largest contributors to the inflow in November, the same trend observed in the last three months.

There was accretion to the external reserves in November following four months of consistent drawdown.

Akinwunmi noted that the proceeds from the US$2.86 billion Eurobond issuance contributed to the growth of external reserves in November.

The CBN continued with its tight monetary policy stance in November with the objective of maintaining stability in the foreign exchange market.

Consequently, yields on the federal government securities increased in November compared with October except on 91-day treasury bills.

“Although the aggregate outflow in the market in November exceeded the inflows, the NTBs maturity repayment in November led to increase in liquidity. This led to a decrease in rates and yields in the interbank market.

“Also, the limited outlets for the liquidity in the financial market led to a drop in the interbank rates. FSDH Research expects a total inflow of about N2.68 trillion to hit the money market from the various maturing government securities and Federation Account Allocation Committee (FAAC) in December 2018.

“We estimate a total outflow of approximately N579 billion from the various sources, leading to a net inflow of about N2.10 trillion,” Akinwunmi added.

The Debt Management Office (DMO) through the CBN had cancelled the auctions scheduled for the 13th and 20th December, 2018, while it will redeem the maturing securities.

“FSDH Research believes the DMO will use the proceeds of the Eurobond to redeem the maturing FGN Securities leaving investors with huge liquidity looking for investment outlet.

“Consequently, the yields on government securities and the interest rates in money market may drop in December. This is in line with the trend that FSDH Research observed in December 2017 following the issuance of Eurobonds.

“The CBN may not increase the yields on the fixed income securities in December except there are indications of significant capital flight from the financial system from foreign investors.

“Given the limited investment options in Nigeria, the yields of the Open Market Operations (OMO) may remain at the current levels till the end of the year.

“Although yields on bonds may increase above the current levels early next year, FSDH Research believes the yields are attractive at the current level. Investors should strategically position in the bonds

Investors should take advantage of the current yields in the long end of the secondary Treasury Bills market

“We also spot some opportunities in the Eurobond market for investors with Dollar to invest. The bearish trend in the equity market persisted in November 2018. The Nigerian Stock Exchange All Share Index (NSE ASI) depreciated by 4.90 per cent (a loss of 4.97% in US Dollar) to close at 30,874.17 points.

“Year-to-Date (YTD), the Index recorded a depreciation of 19.27 per cent. Similarly, the market capitalisation recorded a month-on-month loss of 4.90 per cent (a loss of 4.97% in US Dollar) to close at N11.27 trillion (US$36.74bn). The persistent decline in the Nigerian equity market can be attributed to the continued pullback from foreign investors due to political considerations and rising global yields. The increased yields on fixed income securities in Nigeria also led to reallocation of portfolios away from the equity market,” the report stated.

It predicted that inflation rate for November 2018 would inch up to 11.28 per cent as a result of the impacts of end of year purchases.

FSDH Research noted the significant drop in the price of crude oil in October 2018 and highlighted implication on the Nigerian economy should the price continue to fall. According to data obtained from the US Energy Information Administration (EIA) Short-Term Energy Outlook (STEO) in its report for November 2018, crude oil prices declined in October at a faster rate than in any month since July 2016. Brent spot crude oil price declined by U$10/b in October to close at U$75/b. Similarly, Bonny Light crude oil price declined by 16.01% in October to close at US$73.34/b. The price of Bonny Light crude oil dropped further to US$59.22/b as at 30 November 2018. This represented a drop of US$28.44/b from the highest price of US$87.66 recorded in October 2018.