Domestic fund managers seek dollar assets as rout intensifies

Crude was on track for its biggest one-day drop since the 1991 Gulf war after the Saudi move, which threatens to swamp the oil market with supplies just as the coronavirus outbreak hits demand.

BusinessDay has gathered that most domestic investment and fund managers are looking at buying or investing in dollar denominated instruments such as Eurobonds to hedge the fallout from the selloff.

“This will provide the needed hedge should interest rates and stocks continue to go south and inflation North,” a fund manager told BusinessDay.

Analsysts say oil’s cataclysmic collapse will resonate through the energy industry, from giants like Exxon Mobil Corp. to smaller shale drillers in West Texas.

It will hit the budgets of oil-dependent nations from Iraq to Nigeria and could also reshape global politics, eroding the influence of countries like Saudi Arabia.

Nigeria’s 2020 budget is based on an oil price benchmark of $57 per barrel. Investors and fund managers are anxious about the ability of the Central bank of Nigeria (CBN) to adequately provide liquidity to the FX market.

In that sense a move into dollar denominated assets will provide a hedge against any potential devaluation or surge in inflation from dollar scarcity.