The Head of Wealth Management, Standard Chartered Bank Nigeria and West Africa, Lanre Olajide, and the bank’s Chief Investment Officer for Africa and Middle East/E & Head of Fixed Income, Currencies and Commodities Strategy, Manpreet Gill, in this joint interview spoke about their bank’s economic outlook for 2023 as well as investment opportunities for discerning investors. Obinna Chima brings the excerpts:
We have seen the World Bank, IMF and other notable organisations predicting a gloomy economic outlook for 2023, what is Standard Chartered Bank’s projection for the year?
Gill: We agree with the view that economic growth is expected to slow globally. The point to note primarily is that it is driven by the United States economy. We focus on that because economically and market-wise, that is the one that matters for us all. We agree that the global economic outlook would keep getting weaker and we are only starting to see that to some extent. We expect the Federal Reserve to raise interest rate and the goal at the end of the day is to try and slow the economy down. That is how you get inflation under control over a long period of time. But I think we have already seen that to some degree. If you look at high frequency data like the Monthly Manufacturing PMI data, growth has already started to slow down and in our view, we would end up with an economic recession at some point over the next year. The US is still the world’s largest economy and remains one of the largest sources of global demand. But even for financial market investors, that gives us something we can hang on because for example, bond yields tend to move lower during recession; equities move lower but tend to bottom before the economic recession ends. This US-centric view notwithstanding, China is at the opposite point in the cycle. China was already facing a significant growth slowdown last year and its central bank was already cutting rates. Its government was already trying to stimulate the economy. However, it had ongoing mobility restrictions. I think for Europe to a large degree, Europe is linked to what is going on in the United States because many of the challenges centre around inflation and the central banks trying to slowdown the economies. I also think there are some divergences within the Eurozone with Germany turning out stronger than what we expected last year, but inflation is still high, and I think that is the most important thing because it means the ECB is expected to keep trying to slow the economy down. So, their situation is not too different from that of the US. For Africa and indeed emerging markets, I think they fall somewhere in the middle because on one hand, the US economy is still a big source of the demand. Usually, when the US goes into a recession, demand slows around the world. But there are two offsetting factors this time which makes it a bit different – Firstly, is the Chinese demand and the second is usually through economic recession the dollar weakens and weak dollars is usually a good environment for most emerging and African markets.
How can economies navigate through these challenges this year?
Gill: Speaking on the economic or market point of view, the way to navigate through these challenges is likely to differ somewhat depending on one’s circumstances. I think policy makers are always good at navigating these challenges, though they often have to make some difficult trade-offs. But the perspective we take is that as investors, navigating economic recessions is going to be key. The first thing to keep in mind is that the economy is not the market. I think if we can get that mindset in place, it makes navigating a lot easier. Economic recession can be difficult as slower growth means slower exports in the US, it means job losses and it is not pleasant. But for markets, the pattern historically has been relatively consistent. Bonds tend to do quite well during economic recessions, even stock markets usually bottom before the end of economic recessions. So, once we get to the point where the market believes that policymakers would support the economy, then markets are likely to stay rising. As investors, the key thing is not to wait for the end of the economic recession and that can be hard because it almost always means doing the opposite of what the headlines would suggest. The headlines would talk about slowing growth and others, which is what we see in many markets. So, the key thing here in navigating economic crisis is the market not being viewed as the economy.
Standard Chartered bank is known as one of the industry leaders in terms of wealth management. Can you tell us about your overall strategy for Africa and Middle East and how this feeds into the Nigerian market?
Olajide: Yes, as a bank, Standard Chartered is quite strong in wealth management. Our vision is to help people prosper and achieve their life goals, and we vigorously pursue this across the various markets in which we operate, including Nigeria. We are a market leader and leveraging on our global reach, expertise, and experience – we intend to continue offering world class wealth management solutions to our clients and prospects. The processes, the systems/platforms, the products, the people – we basically have everything here in Nigeria and we plan to keep using these resources effectively to help our clients build, manage and protect their wealth. We have principles here, and these really guide us as we go about the execution bit. One of the things you will see us do at Standard Chartered, which is not so common locally, is to really know a client through what we call a client investment profile. It helps us identify risk-tolerance levels, investment objectives, time horizon etc. Without these, we would not even recommend products. We also aim to deliver best in class advisory. We bring our clients together at the beginning of every year for this Global Market Outlook event to review the previous year and share our views about the future. This sets proper context for activities in the new year and then we begin to look at individual portfolios and needs, and to provide advisory based on appropriateness and suitability. Now, talking about products, we have investment products such as Mutual Funds from some of the best Fund Houses in the world (we have partnerships with the likes of BlackRock, Franklin Templeton, Allianz) and we also have Fixed Income Securities (Sovereign and Corporate Bonds) – both local currency denominated as well as in foreign currencies. We have FX solutions (for transactional and investment purposes), and we have credit solutions. Our credit solutions basically give clients the opportunity to use the investment products I mentioned earlier collateral to access funds and do further investments or just to meet other financial obligations and of course we have bancassurance, which is basically Standard Chartered partnering with insurance companies to provide insurance solutions to our clients. We pride ourselves in our people; they are well-trained, and certified. Our Relationship Managers at Standard Chartered can have deep discussions with you about your investment portfolio and a range of other wealth management related matters. The RMs are fully supported by Wealth Specialists (Investment Advisors, Treasury Specialists, Wealth Lending Specialists) and they are all accessible to our clients. To us, investment and wealth management is not just about selling products and moving on, it is an end-to-end journey. Finally, the platforms – quite robust. The digital agenda is a huge part of our wealth management strategy. Shortly Before the pandemic in 2020, we had invested very strongly in our digital capabilities. So even during the lockdown our clients were not negatively impacted. Today most of them do their investments (subscriptions and redemptions) in Mutual Funds and Fixed Income Securities on our mobile platforms. Clients can continue to monitor their investment portfolios and also access up-to-date market information on the same platform.
Can you tell us your priorities for your wealth management business and clients in Nigeria?
Olajide: Our goal is to build, manage and protect our clients’ wealth. In 2023, our priorities would be to achieve these goals for even more people (deepening our client base and getting our prospects on board too). We will also continue to deliver new, innovative solutions. 2022 was a very volatile year and we spent considerable time in engagements with our clients – in 2023, we do expect less volatility but we will keep up the engagements and make them even more robust.
When you talk to your clients, both local and foreign, what do you tell them about Nigeria, are there concerns?
Olajide: It is pretty much what we tell ourselves in Nigeria. Things are not as rosy as most of us expect them to be in Nigeria, but the opportunities are immense. And again, going back to what my colleague said, the markets are not the economy. In Nigeria today, you hear people talk about currency devaluation, and inflation. You probably would not see a fixed income security that would help you beat inflation today, but what we tell people is that inaction is a great killer. Inflation closed at 21.3 per cent in December, 2022, you will be hard-pressed to see any local bond that would give you more than 15 per cent today. So, your real return on your investment effectively is negative. But would you rather have zero because that is what you will have if you don’t do any investment. However, if you take 15 per cent and you are battling 21.3 per cent inflation, that is a negative return of six per cent. As you know, fixed income has capital appreciation potential and if that crystalizes, you could see yourself making as much as 20 per cent capital gains. Now, talking about foreign currency devaluation, which is a big issue for most of us in Nigeria, you are aware that there are Eurobonds in Nigeria such as the FGN Eurobonds. Those bonds offer yields of about 10/11 per cent currently. One of the things Standard Chartered did was to democratize that space. You would traditionally need about $200,000 to invest in Eurobonds. Standard Chartered has recently created a solution that allows clients invest with as little as $20,000.
Gill: The other key point is about the global context. In every emerging market, while there is the understanding of what is happening in the domestic market, which is important, the global context matters a lot. One is our view on the US dollar and what is happening with liquidity. That has a surprisingly strong impact. We actually think part of the reasons you have seen so much pressure on financial assets is because we have seen a very strong dollar over the last two years. In 2023, we think that would reverse. The second point about Eurobond is that part of what delivers those investments is that they are dollar-denominated and so what happens with interest rate in the US matters a lot.
What areas do you think offers the best investment opportunities in Nigeria?
Olajide: One thing we say at Standard Chartered is that we have everything for everyone regardless of what your risk rating is (so long as you’re not risk averse) and regardless of what your investment objectives are. Now, when you talk of areas where we have opportunities, we see it everywhere (Fixed Income, Equities, Mutual Funds) because we are also a strong believer in diversification. We would never tell you to put all your eggs in one basket. We have an array of products and we do not recommend any single asset class for our clients to put 100 per cent of their investible funds in. We diversify across all asset classes and even across currencies – based on your risk rating. Incidentally, we don’t offer local equities as we speak, but we don’t discourage clients from putting some of their money in the local equities market. The other thing I would say is that the fact that there is short-term pain in any particular area presently, does not mean people should avoid it completely. The global equities markets may be struggling today but there are strategies to mitigate some of the challenges. You can reduce your weight in that area and tilt towards fixed income, or maybe rebalance within sectors or geographical location. But we would not necessarily tell you to leave the equities market totally, because it is an area that has consistently delivered strong returns over the long term – and once the fundamentals are good, it is only a matter of time before it rebounds. An effective way to also access opportunities in the markets is Mutual Funds. They are well diversified and can help you get exposure to any asset class you desire – whether it’s equities or bonds or a hybrid (combination of both). There are also Mutual Funds that have Real Estate, Commodities etc as underlying assets. In terms of geographical exposure (US, North America, China, Emerging Markets) and currencies (USD, EUR, GBP), we also have Mutual Funds that provide these exposures. As I said earlier, our approach to investments is quite encompassing. Our periodic portfolio review process ensures that we examine clients’ portfolios regularly and help them take advantage of suitable opportunities on a continuous basis.
