In the last two editions of the Nigeria Weekly Update we described our process for managing our Model Equity Portfolio. As well as stock selection, and the occasional stroke of good luck, it was important that we took some of our notional positions out of the equity market when market interest rates were rising (and the equity market was falling) and put them back when they stabilized. The ability to hold cash in important. See page 2 for details.

 FX

 Last week, the exchange rate at the Investors and Exporters Window (I&E Window) weakened by 4.60% to close at N435.00/US$1, a record low. Year on year, the Naira has weakened by 5.69%. Elsewhere, the continued interventions of the Central Bank of Nigeria in the FX markets brought about a further, albeit modest, decline in its foreign exchange (FX) reserves by 0.12% on the week to US$40.53bn – the lowest level since 18 October 2021. However, the level of FX reserves remains high in historical terms (up 14.57%orUS$5.15bny/y),and therefore the position of the CBN looks strong. As a result, as liquidity rises in the official FX markets, it seems possible that stability will be maintained in the I&E and NAFEX rates in the near term. 

BONDS & T-BILLS

 Last week, activity in the Federal Government of Nigeria (FGN) bond secondary market was mixed but with a bullish tilt. As a result, the average benchmark yield for bonds fell by a marginal 1bp to 11.55%. Notably, the yield on the 3-year (-1bp to 10.55%) bond tightenedwhiletheyieldsonthe7-year(7.59%)and10-year(12.60%) bonds were flat. We maintain our expectation that a future rise in bond yields is unlikely to be sharp as the monetary authorities appear content with 2021’s economic and monetary outcomes and are likely concerned with the government’s cost of servicing debt.

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