…As Funds managers remain resilient amidst currency volatility – Report***
The turnover included all products traded on the FMDQ secondary market including foreign exchange, treasury bills, sovereign bonds, other bonds issued by agency, sub-national, corporate and supranational institutions, Eurobonds and money market instruments such as repos and buy-backs and unsecured placements and takings. The turnover excluded primary market auctions in treasury bill and bonds.
The data, collated from the weekly trade data submissions by FMDQ dealing-member banks, represented trades executed amongst the dealing-member banks, dealing-member banks clients and dealing-member banks and Central Bank of Nigeria (CBN).
With average exchange rate of N317.24 per Dollar, the 11-month turnover stood at $410.32 billion. Average daily turnover stood at N565.96 billion or $1.78 billion during the 230-day trading session.
A breakdown of the turnover showed that treasury bills accounted for the largest turnover of N56.14 trillion. Repurchase agreements and buy-backs followed with the second largest turnover with N29.16 trillion.
Others included foreign exchange N18.70 trillion, foreign exchange derivatives, N15.51 trillion; sovereign bonds, N9.04 trillion; other bonds N27.85 billion; Eurobonds N82.14 billion; unsecured placements and takings N1.49 trillion and money market derivatives, which recorded a turnover of N22.9 billion. Also, 2017 saw a steady flow of transactions and activities in the Naira-settled OTC foreign exchange (FX) futures market.
The market, which was borne out of the desire to address the need for risk management in the Nigerian FX market has continued to show appreciable potential as an effective hedging product for investors, businesses and government institutions alike.
By December 7, 2017, $10.38 billion worth of OTC FX Futures contracts have traded so far with the CBN remaining steadfast in its commitment to ensuring the success of the market. As it has been the norm for 17 maturities on FMDQ, the 18th OTC FX Futures contract matured and settled successfully on December 27, 2017.
Having ceased trading on December 20, 2017, in line with the OTC FX Futures market operational standards, the 18th OTC FX Futures contract, NGUS DEC 27 2017, with notional amount $499.20 million, matured and settled on FMDQ. This brings the total value of contracts so far matured on FMDQ to $7.35 billion.
A new contract, NGUS DEC 26 2018, for $1.00 billion at $/N362.84 has been introduced by the CBN to replace the matured contract.
In the meantime, African private equity mangers have continued to remain resilient amidst currency volatility and unpredictable political environments, according g to a report by African Private Equity and Venture Capital Association (AVCA). AVCA , in the recently launched inaugural edition of its special research reports stated that macro economic instability was a major constraint to investment .
According to the report; “Investors typically cite concerns over political unrest and macroeconomic instability, such as foreign exchange, FX volatility, as major factors deterring their investment in emerging markets generally, and Africa specifically.”
The report therefore examines the strategies adopted by fund managers active on the continent to address the risks and take advantage of the opportunities involved, despite the hurdles presented by challenging macroeconomic conditions. According to the report; “ 63% of active General Partners , GP (active fund managers) view currency and commodity price volatility as having been the most important macro factors in Africa over the past three years, while 45% consider geopolitical risk to be the biggest macro risk over the next three years.
As a result, two thirds of active fund managers will factor in political risk management when constructing their portfolios, combining diversification and the avoidance of risky locations to mitigate potential challenges.
This is in the context of relatively low GP interest in purchasing political risk insurance.” AVCA’s research also highlights that currency volatility can be addressed by investing in market-leaders in resilient sectors, such as Consumer Staples and Healthcare, and adopting expansionary strategies.
These tactics, according to the report contribute to the industry’s overall health and growing reputation as robust even when faced with sustained headwinds.
By showcasing case studies that illustrate the various ways in which GPs have planned for and reacted to currency volatility in Africa, the report further demonstrates that FX volatility can be weathered by focusing on the quality of business operations, expanding revenue streams, passing increased costs on to consumers, and reducing the need for hard currency by sourcing inputs locally.
Commenting on the new research report, Antoine Delaporte, Founder and Managing Director of Adenia Partners, and Member of the AVCA Board, said: “We are delighted to provide crucial insights at a time when the private equity industry continues to prove its adaptability in the face of sometimes challenging conditions. No doubt, Africa is on a long-term upward trajectory in its development of business environments that are more favourable to investment.
It is important for us to highlight the opportunities present in the current environment and showcase strategies that produce outsize returns for investors while delivering significant impact.”
Nation with additional report from Vanguard
