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This Week in Nigeria Capital Market (Dec. 9-13): Yields, Rates and Stock Picks

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Government, Banks, SMEs and/or Consumers… who is benefiting from the crashing rates?

As the CBN continues to tighten the lid on any incentive to invest in Nigerian Treasury Bills (NTB), banks are compelled to continue to open their taps for lending to consumers and SMEs. At the close T-Bills Primary Market Auction (PMA) on 11th December 2019, T-bills stop rates hit another new-year low. In fact, T-Bill rates have now declined by over 30% across all tenors in the last one month. At the current inflation rate of 11.61%, the real return on T-Bills is now zero.

A lower yield environment is positive for the government’s swelling debt service costs and presents a good opportunity for SMEs, Corporates to raise debt at much cheaper rates. At the other end, it creates a conundrum for Pension Fund Administrators (PFAs), fund managers, who are now stuck with negative real returns on new investment in T-Bills.

As if the low yields on T-Bills aren’t enough, CBN Director, Banking Supervision Department, Mr. Hassan Bello mentioned that The Central Bank of Nigeria will increase banks’ Loan to Deposit Ratio to 70% by 2020, he gave this hint during the week while speaking at the 2019 workshop for Finance Correspondents and Business Editors.

The Monetary Policy Committee (MPC) had noted in November an increase of N1.17 trillion in absolute gross credit between May and October, this was attributed to the adjusted LDR for deposit money banks. Manufacturing was the largest beneficiary, accounting for N460 billion of the increase. Consumer loans shared N360 billion from the total.

Despite these positive moves by the CBN, sadly, there is very little impact this can have in the long-run without commensurate fiscal efforts.In an economy stuck in a low growth cycle and susceptible to erratic and inconsistent government policies, we can only hope that the Government will handle its fiscal responsibilities with more urgency to reap the full rewards of a low-interest environment.

In plain language, imagine getting a loan from the Bank at 12%, then you spend 4 hours out of 10 productive hours in traffic daily, you can only power your factory 11 hours out of a possible 18 for fear of diesel cost, your raw materials spend 34 days at the port instead of 2 days, etc.

Beautiful monetary policies and lower interest rates without commensurate fiscal policies to fix infrastructures will always make a 12% interest rate feel like 27%. It’s the responsibility of fiscal policies to fix roads, power and ports.

Updates from the Stock Market: Greetings from Santa

December! Always a month to remember, the green trees laced with red and lightings, the merry mood and the memorable feelings that come with it…

Look closely at the images below, particularly the month of December, the red spots are supposed to give one a feeling of merry, except that in this case, it’s the gauge for daily performance of stocks in the equities market. Unlike the Santa feeling that comes with December, red in the equities market means the market is bleeding, losing money.

In fact, the first few days of this December are the worst of all the years under review (2012-2019). The gains (green) recorded so far were as a result of the fall in treasury bill yields after the 11th of December Auction. Typically, bearish treasury yields create bullish opportunities for the equities market, exactly what played out on 11th and 12th as seen below, sadly, headwinds in the economy wouldn’t let the equities market enjoy the excess funds flowing from the money market.

Falling ASI or stock prices cause panic in some investors, but fluctuations in the stock market represent business as usual for others. Investors who are comfortable with this reality know how to respond to falling prices and how to pick companies that are good buys when stock prices are on the downward trend.

What should you do when the stock market is in red?

Find a good company that is underpriced, buy and be patient. Most importantly, you must know your investment objective, risk appetite and investment horizon.

Here is a list of some underpriced stocks with potential for high dividend yields and capital gain. (Please note that the stock picks and the potentials presented are not guarantees, they are only recommendations. The equities market comes with its own risk, consider your risk appetite before investing)

Smile! There are still enough trading days left to make this December one to remember.

FOLLOW Me on LinkedIn

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It was very emotional: “Sir, you have refused my connection request on LinkedIn. Was it because I had only OND and did not attend a university?”. That was an email from a LinkedIn user this morning. It touched me since I have no answer to the problem: I have max’d my allowed direct connections on LinkedIn. In other words, I cannot accept any new connections even though you can send me requests! I have thousands of requests PENDING which would fade. 

Accepting anyone in my network does not cause me anything and I do not check profile or status before I accept. To move forward, the only option available is to FOLLOW me. If you click FOLLOW, if we are not connected already, you will read my feeds. Do it now as I want you to be reading me! (lol).

Of course, I have my email there if you have something you want to pass across since FOLLOW does not allow that.

But know one thing: your education or status has no relationship on this. I am a village boy; I grew up knowing that many can rise.  OND is a huge accomplishment and you are already rising.

FOLLOW Here

Simply, The Best Companies in Nigeria Have Not Been Founded!

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Simply, the best companies in Nigeria have not been established. If anyone tells you that all the opportunities are gone, respectfully ignore him or her. If Nigeria is operating at its optimal productivity level, its GDP should be $3 trillion (well above the current  $500 billion). If you do the math, it means Nigeria needs 6X multiples to attain equilibrium. About 90% of the companies in Nigeria today are not wired for that type of leverageable growth. Yes, even if they try, the anchored elements upon which they are built cannot enable them to experience  that redesign.

Only new species will provide that growth under new tenets, driven by new business models, energized on new policies. Hope you get the point why our insurance sector has less than 2% penetration, electricity companies deliver darkness to more customers than light, potable clean water nonexistent, using 65% of workers to produce hunger when others use 5% to produce excess food, [add your list], and banks serving less than 35 million unique customers in a nation of about 200 million citizens.

People, the best companies for Nigeria have not been founded. Yes, they have not. It is safe to blame customers. But I take you back to the 1990s when new generation banks came, and brought many citizens to believe in banking services. We need that type of redesign in insurance, water services, electricity, education, healthcare, and more. The companies that would make such happen are scarce today!

The biggest opportunity in the next ten years in Nigeria would be expanding sizes of industrial sectors, not just winning market share. By that I mean expanding the sizes of sectors like insurance, agriculture, etc, through leverageable elements, not just winning market share out of yoyo players in an industry. 

Are you better commanding 10% market share in a $100 billion sector than 20% in a $10 billion one? I will vote for the first option: only new thinking will make such redesigns happen. I explain in this video.

A Cryptocurrency to Invest in in 2020

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Bitcoin pops into mind when you think of a stable cryptocurrency to invest in in 2020. Bitcoin has proven to be a decentralized electronic currency with stability in both the short and long-term. You can buy items in local shops, get paid in bitcoins and use it to shop online. Expatriates in foreign countries can send bitcoins home to help their families; regardless of where they work around the world. There has been no single, corporation, government or nation that has been able to control Bitcoin since its inception. This applies to other cryptocurrencies as well. However, Bitcoin is unique and it is the currency to invest in in 2020 due to the following reasons

Bitcoin Properties

Bitcoin being the first successful digital currency has core properties including being immutable, decentralized, censorship-resistant, scarce and open-source. These properties have made it stand out from the others as ideal money for people all over the world for a long time. Besides, Bitcoin is more than a system to store and transfer value from one person to another. Although, you can buy some items which have Bitcoin addresses stored on them, the durability of the currency makes it worth being used over the worldwide web as money now and in the future.

Bitcoin Network

Any currency can maintain its value by the virtue that it is in limited supply. The Bitcoin network has a rule that binds the network users as a whole (NakitCoins experts) with a high degree of security. The rule determines the quantity of bitcoin produced and allowed in circulation at any one time. Almost all of the users on the network would have to agree to change the rule. This is almost impossible, given they would have to agree to change the network policy and standards. This makes Bitcoin scarce and therefore of the highest value. This currency is also divisible up to decimal places. Therefore, used on a worldwide scale you can transact in fractions of bitcoin. If the value increases at any given time, it will mean casual daily spending would be in bits and milli bits which are the decimals. You can do your daily groceries with as little as 50 milli bits. This makes Bitcoin the right cryptocurrency for the 2020 and the future due to its viability.

Bitcoin Versatility

The ability for this currency to be stored on your computer, electronic gadget or bitcoin specific hardware wallet is also a plus to the currency. As compared to carrying a wallet full of cash or even gold, it’s much lighter and thus frictionless and weightless. This means you can easily move around with it. This has made it possible to move huge amounts of value across the world almost at no cost. This has made bitcoin quite efficient and promising for future investments and transactions.

Conclusion

Bitcoin provides an avenue for business people or any other person to carry out business transactions or run their daily affairs in a relaxed and flexible environment. For the future, Bitcoin has alleviated the risks associated with many currencies due to its stability, and statistical data that has shown a promising future. Bitcoin remains the cryptocurrency to invest in in 2020 going forward.

When A First Lady Speaks for Help

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It has been over four years since Muhammadu Buhari became president and occupied the seat of governance in Nigeria – Aso Villa. These years have seen headlines of interesting tales bordering on governance matters to family issues, and it doesn’t seem to be ending soon. Nigerian polity is seen to be notorious of chaos and every other form of antiques that have resulted in instability, both socially and economically. It is believed that apart from tribal and political differences inhibiting peaceful coexistence, in-house rift has become another norm that decency has refused to welcome.

In October, a video of fracas between the first lady, Aisha Buhari and Mamman Daura families surfaced online. The intriguing confusion that followed was unbecoming of the seat of governance in a country of 200 million people.

Barely a month after, amidst other chaos taking place in perceived corridors of brutality, the wife of the president has issued a statement pointing fingers at some principals officers at the government, and it is more glaring than the video that was virally circulated about a month ago.

It opened a cankerworm of animosity between the first family and the president’s nephew, Mamman Daura, his influence on governance, and other matters that the Nigerian public have been oblivious to. The statement reads:

GARBA SHEHU HAS GONE BEYOND HIS BOUNDARIES

“Nigeria’s development is hinged on the ability of public officials to execute their mandates professionally, and to be shining examples in their various areas of endeavor. It is not a good sign when officials abandoned their responsibility and start clutching at straws.

“As spokesperson of the President, he has the onerous responsibility of managing the image of the President and all the good works that he is executing in the country. Rather than face this responsibility squarely, he has shifted his loyalty from the President to others who have no stake in the compact that the President signed with Nigerians on May 29, 2015 and 2019.

“To make matters worse, Mr. Shehu has presented himself to these people as a willing tool and executioner of their antics, from the corridors of power even to the level of interfering with the family affairs of the President. This should not be so. The blatant meddling in the affairs of a First Lady of a country is a continuation of the prodigal actions of those that he serves. We all remember that the chief proponent appropriated to himself and his family a part of the Presidential Villa, where he stayed for almost 4 years and when the time came for him to leave, he orchestrated and invaded my family’s privacy through a video circulated by Mamman’s Daughter, Fatima, the public was given the impression that on arrival into the country I was locked out of the villa by Mr. President. Garba Shehu as Villa Spokesperson, knew the truth and had the responsibility to set the records straight, but because his allegiance is somewhere else and his loyalty misplaced, he deliberately refused to clear the air and speak for the President who appointed him in the first place. Consequently, his action has shown a complete breakdown of trust between the First Family and him.

“Mr. Shehu was privy and part of the plan & it’s execution and he was shocked when he realized that I had publicized my return to Nigeria on October 12, 2019 and cleared the air on the many rumors that took over social media specifically, a job he was supposed to do but kept mute to cause more confusion and instability for his Principal and his family.

“Garba then, vented his anger on the National Television Authority (NTA) Management insisting that the media crew to my office must be sacked. He succeeded in getting them suspended for doing their job. I had to intervene to save the innocent staff from losing their means of livelihood by involving the Department of State Services (DSS) in order to ascertain roles played by key actors in the saga.

“It is at this late hour that I recall, sadly, that it was the same Garba Shehu who claimed that the government will not allow office of the First Lady to run. He was later to confirm to one of my aides that he was instructed to say so by Mamman Daura and not the President. This antic attracted the anger of Nigerian women. He didn’t realize the fact that First Lady’s office is a tradition which has become an institution.

“Today, even without a budget, I am able run my humanitarian programmes.

“In saner climes, Garba Shehu would have resigned immediately after going beyond his boundaries and powers.

GARBA SHEHU NEEDS TO UNDERSTAND THAT THIS KIND OF BEHAVIOR WILL NO LONGER BE TOLERATED.

“The latest of his antics was to wage a war on the first family through an orchestrated media campaign of calumny by sponsoring pseudo accounts to write and defame my children and myself.

“Based on all the happenings between Garba Shehu in his misguided sense of loyalty and inability to stay true and loyal to one person or group, it has become apparent that all trust has broken down between my family and Garba Shehu due to the many embarrassments he has caused the Presidency and the first family. We all have families to consider in our actions and therefore it is in the best interest of all concerned for Garba Shehu to take the advice of the authority, given to him sometimes in the first week of November, 2019.”

According to critics, this statement reveals two major factors: 

  1. The president appears not really at the helm of affairs in Aso Villa. 
  2. Members of his cabinet have carved out a political niche for themselves and the president is obviously not aware of it. It is seen as a house divided against itself and the dysfunction in the country is the resultant consequence.

The First Lady herself appears helpless and needs the help of the public. But her open support for the ant-social media bill seems to have waned whatever remains of the sympathy that people once had for her. This isn’t the first time she is speaking out about a cabal taking over her husband’s presidency, and the way it’s going, it is not going to be the last.