Investors Push For Dollar Assets As Returns Hit 20%

Many investors are scrambling for dollar assets which returned average of 20 per cent last year, as against seven per cent returns by equities and savings.

So far in the year, net capital gains by investors in Nigerian equities have risen to N2.38 trillion as investors target dividend recommendations by major quoted companies to increase their stakes.

Despite the prospect of good yields in equities, many investors are scrambling for Dollar Funds offered by many investment companies, as they are considered better investment option given the 2021 performance.

The Dollar funds are, however, limited by regulatory policy set by the Central Bank of Nigeria (CBN). For instance, foreign assets investment policy set by the CBN requires that only dollar inflows from offshore accounts, and not locally sourced foreign currency can be invested in dollar assets.

Report by Agusto & Co, a credit rating agency, said that last year, savers gained on average, a seven per cent return on one-year Federal Government of Nigeria (FGN) securities like bonds and Treasury Bills, but those who went into US Dollar investments, earned a 20 per cent return as exchange rates moved from N470/$1 to N564/$1 in the parallel market.

Head of Consulting at Agusto & Co, Jimi Ogbobine, said despite high returns in saving or investing dollars funds, there are operational issues that limit local investors from entering the space.

“There are alternatives to dollar investment which investors could work out with their asset managers to get good returns on their investments in local funds and equities,” he said.

In emailed note to investors, Head, Equities, FBNQuest Capital, Olubunmi Asaolu, said the All Share Index (ASI) gained over 6.1 per cent last year, following the prior year’s 50 per cent increase, thus marking the third gain in eight years.

“The market continued to benefit from the positive impact of the economy’s re-opening as the authorities eased lockdown measures implemented to contain the spread of COVID-19.”

“Domestic investors were prominent, with visible institutional and retail investor activity in response to encouraging earnings reports across several sectors. The easing of restrictions in 2021 improved corporate performances as the macroeconomic environment stabilised,” he said.

According to Asaolu, offshore investors remained lukewarm last year, unlike the previous year when small-to-mid cap stocks boosted the market’s performance.

“Excluding banks, performances were impressive across the board. Palm oil, food and beverage, oil and gas, brewers, and telecoms, all posted gains and outperformed the market. The home and personal care group (within the fast-moving consumer goods sector) and cement sectors, went up 1.4 per cent and +5.7 per cent, respectively, underperformed the All Share Index, while banks decreased -1.0 per cent on average,” he said.

Analysing how the equities performed, Asaolu said in contrast to other large banks, FBN Holdings gained 60.8 per cent following an increase in the stake of a major shareholder in fourth quarter.

Other notable gains were Union Bank (not covered, 13.1 per cent) and Access (7.7 per cent). Union Bank shares surged following Titan Trust Bank announcement that it was acquiring a majority stake in late December last year.

“For the non-banks, their performance was good. The palm oil sector was the best performer across our coverage universe, gaining 39.9 per cent on average. Okomu (56 per cent) and Presco (23.7 per cent) benefited from a rise in global commodity prices which offset weaker unit volume sales. Palm oil prices moved up due to a shortfall in expected supply and a recovery in global demand,” Asaolu said.

He said the technology sector continued to benefit from the pandemic due to the shift to remote working. MTN Nigeria (7.1 per cent) and Airtel (12.1 per cent) were beneficiaries. In 2021, both names gained 70 per cent and 197 per cent, respectively. Offshore investors had supported Airtel’s performance in 2020.

Other notable performances include the food companies (35.1 per cent), oil and gas names (23.6 per cent), and the brewers (23.3 per cent). UACN and Flour Mills of Nigeria (FMN) were the best-performing stocks under our coverage among the food companies.