Individuals and corporate organisations can invest in Nigerian Eurobonds to lower risk exposure of their investments amid uncertain times and hedge against currency risk, according to FBNQuest analysts.
The coronavirus-induced huge volatility in the exchange rate has intensified risk of lower real returns from investments in naira-denominated assets due to possible higher inflation, while investment returns in dollar terms are potentially lower for those to whom the dollar value of their wealth is critical.
“These include parents that have to pay fees to schools abroad and others who have regular or occasional foreign currency obligations,” said FBNQuest.
According to the analysts, all these highlight the value of diversifying into foreign currency-denominated investments.
The analysts said FBN Nigeria Eurobond (USD) Fund, an alternate investment options, provides the opportunity to invest in Eurobonds issued by the Nigerian government and Nigerian banks.
The FBN Nigeria Eurobond (USD) Fund is managed by FBNQuest and requires a minimum investment of $2,500 only to get started, a relatively low amount when compared to the minimum entry requirement of other Eurobond funds offered in the country.
“It is noteworthy to mention that Nigeria has no history of default on its foreign currency, even when oil prices fell to $10 a barrel in the late 1990s,” said FBNQuest.
The analysts said sovereign default risk remains low, and Nigeria remains in a strong position to meet its foreign currency obligations which are estimated to not exceed $2.5 billion this year.
In just over a month, the COVID-19 pandemic has unleashed a global economic slowdown that is unprecedented in a time of peace. In March, gigantic economic stimuli have been proposed by governments and central banks to manage the impact of a public health scare that may change our world as we know it forever.
While governments and businesses across the world are trying to come to terms with the attendant impact of the border closures, stay-at-home orders and the rising rate of infections on economies, portfolio investors are also confronted with tough decisions to preserve the value of their assets.
Financial markets have also not been spared in the slowdown, as stock markets in Europe and America have fallen sharply. The price of crude oil has also fallen, and oil-producing economies like Nigeria are facing a significant price shock with weaker fiscal buffers than they had to soften the blow from past price slumps.
However, the spread of the coronavirus (COVID-19) across the world has caused many investors to pause and re-evaluate their investment approach.
Typically when empirical research suggests the right action to take, there is a tendency for investors to simply gravitate to the asset class that offers good returns with low to moderate risk but that approach has changed, said FBNQuest analysts, explaining that the current crisis is causing investors to consider portfolio diversification amid heightened economic uncertainties.
SEGUN ADAMS
