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Two Months on, Flexible FX Policy Fails to Lift Equities Market

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Stock - Investors King

The Nigerian equities market has recorded negative performance two months after the implementation of a flexible foreign exchange (FX) policy by the Central Bank of Nigeria (CBN). This is contrary to expectations that the policy will spur inflow of foreign portfolio and domestic investors and lift the market.

The market has shed N151billion in market capitalisation between June 15 when the policy was announced and last Friday. One of the reasons cited for low portfolio inflow into the market was uncertainty about the nation’s FX policy and the CBN’s capital controls.

Available data from the NSE revealed that Foreign Portfolio Investment (FPI) accounted for 40.43 per cent (N189.45 billion) of total transactions on the nation’s bourse in the first five months of the year, down from 57.04 per cent (N519.34 billion) during the same period the previous year.

So when the CBN announced a flexible policy, it was highly expected that the market would rebound on positive reactions to the policy by foreign and domestic investors.

Although reactions were positive initially, leading to a rise of 1.12 per cent in the Nigerian Stock Exchange (NSE) All-Share Index (ASI) from June 20 to 30, it began a down ward trend since July to last Friday. In all, the market has declined by N151 billion in capitalisation, falling from N9.579 trillion pre-flexible policy to N9.428 trillion last Friday. The ASI has fallen by 1.6 per cent, from 27,891.96 to 27,450.91.

A market analysts, Jude Fejokwu said the market had a transient boost during the last nine trading days of June before returning to a persistent decline after global markets recovered post-Brexit.

Looking at the impact of the policy on the market, analysts at Cordros Capital Limited (CCL), said although the CBN may have responded to the agitations of the FPIs with its decision to lift restrictions on the local currency, early signs since the kick-off date show that the programme has had no immediate impact on FPI activities in equities.

“FPI consensus is that the Naira is not sufficiently devalued at N282-285/US$. Overlaying this on reports from the grapevine that the liquidity of the local currency exchange rate is still (indirectly) largely under the control of the apex bank (judging by the relative stability of the NGN) risks Nigeria from being eliminated from the MSCI Frontier Market Index at the next index review in September and further dampens expectations of expansionary foreign investment flows into Nigeria’s risky assets in the near term,” they said.

The hike in the Monetary Policy Rate to 14 per cent also had a negative impact on the equities market. According to analysts, they expect attractive yields in the fixed income market (as a result of the hike in MPR) to shift investors focus from equities.

“Also, lower oil price and lack of FX liquidity are expected to continue to dampen economic and corporate outlook. We believe that all these factors will weigh on investors’ confidence in the equities market,” they added.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

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Energy

Unlocking Investments into Africa’s Renewable Energy Market

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green energy - Investors King

The African Energy Guarantee Facility (AEGF) is launching a virtual roadshow of free webinars allowing a deeper understanding of risk issues for renewable energy projects on the continent, and conversations around risk mitigation solutions. The first webinar will take place on Thursday, 23 September from 14:30-16:00 hrs. EAT. 

The session will be oriented on how to get more energy projects from the drawing board to the grid. While the energy demand in African economies is expected to nearly double by 2040, and although the potential for renewable energy is 1,000 times larger than the demand, only 2GW out of almost 180GW of this new renewable power were added on the African continent.

Clearly not good enough! To improve the situation within the next two decades, new solutions need to be implemented urgently. De-risking and promoting private sector investments will play a crucial part of it.

In this 90-min interactive session, AEGF partners: the European Investment Bank (EIB), KfW Development Bank, Munich Re and the African Trade Insurance Agency (ATI) will share their experience and provide valuable insights on how they were able to come together and design practical solutions for investors and financiers of green energy projects in Africa aligned with SDG7 objectives.

Across Africa, the complexity of renewable energy projects and their long tenors hold back crucial energy investment. Tailored to the specific needs and risk profiles of sustain­able energy projects, AEGF will tackle the investment challenge by providing underwriting expertise and capacity tailored to market needs.

The AEGF will significantly boost private investment in sustainable energy projects, both expanding access to clean energy and contribute to achieving UN Sustainable Development Goals. The scheme supports new private sector investment in eligible renewable energy, energy efficiency and energy access projects in sub-Saharan Africa.

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Energy

Shell Signs Agreement To Sell Permian Interest For $9.5B to ConocoPhillips

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Shell profit drops 44 percent

Shell Enterprises LLC, a subsidiary of Royal Dutch Shell plc, has reached an agreement for the sale of its Permian business to ConocoPhillips, a leading shales developer in the basin, for $9.5 billion in cash. The transaction will transfer all of Shell’s interest in the Permian to ConocoPhillips, subject to regulatory approvals.

“After reviewing multiple strategies and portfolio options for our Permian assets, this transaction with ConocoPhillips emerged as a very compelling value proposition,” said Wael Sawan, Upstream Director. “This decision once again reflects our focus on value over volumes as well as disciplined stewardship of capital. This transaction, made possible by the Permian team’s outstanding operational performance, provides excellent value to our shareholders through accelerating cash delivery and additional distributions.”

Shell’s Upstream business plays a critical role in the Powering Progress strategy through a more focused, competitive and resilient portfolio that provides the energy the world needs today whilst funding shareholder distributions as well as the energy transition.

The cash proceeds from this transaction will be used to fund $7 billion in additional shareholder distributions after closing, with the remainder used for further strengthening of the balance sheet. These distributions will be in addition to our shareholder distributions in the range of 20-30 percent of cash flow from operations. The effective date of the transaction is July 1, 2021 with closing expected in Q4 2021.

Shell has been providing energy to U.S. customers for more than 100 years and plans to remain an energy leader in the country for decades to come.

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Crude Oil

Oil Gains 1 Percent on Possible Tight Supply 

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Oil prices - Investors King

Oil prices rose on Tuesday as analysts pointed to signs of U.S. supply tightness, ending days of losses as global markets remain haunted by the potential impact on China’s economy of a crisis at heavily indebted property group China Evergrande.

Brent crude gained 95 cents or 1.3% to $74.87 a barrel by 0645 GMT, having fallen by almost 2% on Monday. The contract for West Texas Intermediate (WTI) , which expires later on Tuesday, was up 91 cents or 1.3% at $71.20 after dropping 2.3% in the previous session.

Global utilities are switching to fuel oil due to rising gas and coal prices, and lingering outages from the Gulf of Mexico after Hurricane Ada that imply less supply is available, ANZ analysts said.

“While slowing Chinese economic growth and uncertainty around the (U.S.) Fed’s tapering timetable weighed on market sentiment, other developments still point to higher oil prices,” ANZ Research said in a note.

Still, investors across financial assets have been rocked by the fallout from heavily indebted Evergrande (3333.HK) and the threat of a wider market shakeout in the longer term.

“Evergrande’s woes are threatening the outlook for the world’s second-largest economy and making some investors question China’s growth outlook and whether it is safe to invest there,” said Edward Moya, senior market analyst at OANDA.

While that view of the state of China’s economy is weighing on markets, the U.S. Federal Reserve is also expected to start tightening monetary policy – likely to make investors warier of riskier assets such as oil.

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