The Chief Investment Officer, Asia, Middle and Europe, Standard Chartered Bank, Mr. Manpreet Singh Gill and the Head, Wealth Management, Nigeria, Standard Chartered Bank, Mr. Lanre Olajide, in this joint interview speak about the global economy, the pathway for recovery for the Nigerian economy. Obinna Chima presents the excerpts:
MANPREET SINGH GILL:
What is Standard Chartered Bank’s global outlook for 2024?
Our global outlook for 2024 is called ‘Sailing with the Wind.’ We are starting the year on a relatively optimistic note and specifically we mean the United States economy, because that is the one that matters to markets around the world, including Nigeria. In the past two years inflation has been a concern. But the good news is that things are going in the right direction. I think economic growth will be one key factor because we have got more resilient growth than any of us were expecting this time last year, so we think there is room for that to extend to the early part of 2024. In the early part of 2024, we are still optimistic about the equities market and we believe that the rally we have seen since Q4 2023, can still extend, which is a positive sign for risk assets worldwide. One key reason why we call it ‘sailing with the wind,’ is to what extent will those winds change as we go through the year. That is because if you look at long-term recession indicators, they haven’t stopped sending warning signals. I know we had this discussion last year and we never got a recession. But I think what the indicators are telling us is that we can’t stop being vigilant in 2024. Now, we do expect Fed to start cutting rates, but we think it is something that will only start mid-year. So, that is for the United States. I think China is in a different place, and what we are really forward to is stability and some of that have to come from government policies. Looking at emerging markets and thinking from the point of a Nigerian investor, we have to still look at the US interest rates because they still set the tone in terms of global dollar liquidity. Emerging markets tend to do well when US yields are falling and the US dollar weakens. I think this year we would start to get lower dollar yields and that is supportive to risk assets worldwide, especially in emerging markets. I think on the dollar; we are not expecting much weakness.
LANRE OLAJIDE:
What is your assessment of the Nigerian economy since the present administration took over?
The government came on board in May last year and straight away they started a series of reforms. Those reforms are necessary as far as we are concerned. To be honest, they are very painful, but nothing was unexpected. Things had been quite tough in the last couple of years. We had sort of allowed them to deteriorate, so the process of fixing things would take some time and we probably have to go through some pain before we go begin to see some gains. Specifically, they started with fuel subsidy removal, followed by the FX reforms, which continues to reverberate up till now. So, we would see a continuation of that, we would see new once come up and we would see tweaks to the old policies because you and I from where we stand can debate whether some of them are working or not. But generally speaking, our outlook is more positive this year than it was last year. From quite a number of things, especially from personal savings perspectives, the market did very well last year. The Nigerian stock exchange saw almost 50 per cent gain last year. This year it has continued and as we speak, it is at about 37 per cent gain year-to-date. It was one of the best performing markets last year in spite of all the turbulence and instability that we see. So, we do expect the stock market to perform well this year also. The All-Share Index has crossed 100,000 point, which is very good. Market capitalisation today is about N57 trillion, so we are making some good progress. Clearly, the government has shown that it is interested in investment and all of those. So, I think those would be positive. For the macro-economy, inflation would probably trend lower this year, especially when you consider the base effects. For foreign exchange, we have seen some more devaluation this year. We probably would see the currency swing a bit this year – it would go up and come down, until water finds its level. Supply is a major thing as far as foreign exchange is concerned and the government has been trying to increase oil production. A lot of success was recorded last year, as far as oil production is concerned and we hope that is continued to stem the tide in oil theft and all that. The Dangote Refinery is coming up and we would begin to refine our own crude oil and it would to some extent, relieve the pressure on foreign exchange. There have been some reforms from the Central Bank of Nigeria in recent times, just trying to attack the foreign exchange challenge. Again, Nigeria is an import-dependent nation and if you don’t rein in the exchange rate, inflation would continue to impact it in addition to all other things driving it. Generally speaking, the macros may not improve significantly, but there are still lots of opportunities as the government continues to drive these reforms which ultimately we think would take us to where we want to go.
From where you sit, what can be done to address the challenge in the foreign exchange market and from what we are seeing in the stock market, some have argued that it appears to be a bubble, what is your take on that?
For me, the foreign exchange challenge is primarily a demand and supply issue. The demand for dollar is incredible. We are an import-dependent country and almost everything we consume is imported. If you have an economy that runs that way, then your supply must also go up. But there is a deficit in supply. So, the first thing we needed to do is to reduce the imported stuffs that we consume. We absolutely need to export more to generate more foreign exchange so that we can take care of the supply side and I think this is where ramping up oil production comes in to help with foreign exchange receipts. The Dangote Refinery like I said is the right thing in the right direction. Production has started and as it continues to increase and improve, it would contribute its own quota. For the stock market, there would always be suspicion of bubble here and there. But if you look at some of the quoted companies, their fundamentals are sound. But I think at the end of the day, it is a question of working with the right partners in terms of what you are doing. If you are not an expert, do not go to the stock market and stake your money. Work with people who have expertise, good knowledge and are competent in managing wealth and investments generally. I don’t think it is a bubble. Will it do as well as it did last year? In my honest opinion, it is possible. Like I said it did almost 50 per cent last year and year to do it has done about 37 per cent as at today. Of course we are going to see profit-taking coming on at some point during the year, but I think generally speaking, we are headed for another good year of performance in the stock market.
Those who are argue that the stock market rally may be a bubble base their argument on the fact that when you look at economy, the macroeconomic indicators are largely on the negative side and do not reflect what is happening in the stock market?
It is a fair point, especially when you consider things from the manufacturing point of view. But if you look at the financial services, the fundamentals are strong. A lot of the banks have not been negatively impacted by the foreign exchange situation, because banks are prepared for these shocks and are well hedged. A lot of them have operations outside Nigeria, so they have dollar assets. If you look at the oil and gas sector, lots of good things are happening there. The deregulation is good for business. For me, I would say the most challenged is the manufacturing sector, but other than that, I think every other sector is in good stand.
Looking at the CBN, towards the end of this month we are expected to have Monetary Policy Committee Meeting (MPC), what are your expectations?
To be honest with you, there have been some criticism of the CBN because we have had a new Governor for some time now and the MPC has not held. But I would say sometimes you don’t rush to do things. He met a few concerning issues on the ground which are being largely sorted out. When the MPC meets, what are our expectations? We do expect interest rate to go up. As the government tries to battle inflation, interest rates would go up. But on the other side, you don’t want to stunt growth when interest rate goes up, cost of borrowing becomes high and you are talking about businesses that are struggling already. So, you want to encourage growth, you don’t want to stunt it. But you have to achieve that balance, which is the headache that most central banks have to go through. Look at the Fed in the United States, over the last two years they have been fighting inflation aggressively and they have had to sacrifice some growth on the altar of fighting inflation. It looks like success has been achieved now, and they can then begin to tone down what they are doing in terms of fighting inflation. I think same would happen to Nigeria. For now, inflation needs to be combated head-on.
MANPREET SINGH GILL:
As a bank, what investment opportunities are you offering Nigerian investors?
There are few, but I am focusing more on the global opportunities because that is what we look at. Firstly, within the equities market, I think a few regions look important. So the US can be considered because that is where we expect resilience. It could be the broad market or preferred sectors, but we still like technology because it is a cyclical sector. Japan is another one and we talking about Japanese equities, because it is cyclical, just like the United States, but it is a whole lot cheaper. In China, sector strategy can be employed.
LANRE OLAJIDE:
To provide a bit of context, as this concerns Nigerian clients, we don’t offer direct equities in Nigeria. What we do is that we offer mutual funds. We also have stand-alone bonds. So, from a fixed income perspective, we have those bonds. Mutual funds help you express whatever you want to express and are a very good way of giving exposure to our clients.
What do you think are the best investment opportunities in Nigeria presently?
We spoke about the Nigerian stock market earlier, if you saw 50 per cent in a stock market last year, you can’t afford to ignore such a market. Today, it has gained over 36 per cent. So, I would advise that you take a position there. This is in spite of the fact that Standard Chartered Bank does not offer direct equities, but we offer fixed income securities. I will definitely advocate for our local fixed income securities as well. But I will tell you that one pain point for a lot of investors in Nigeria today is currency devaluation. So, you definitely want to do products that help you hedge against that risk. That is where Eurobond and mutual funds come in. Mutual funds can be spread across all these funds as you like. I am not going to say put all your money in dollar-based assets because here in Nigeria we consume naira and you need to generate some income from the naira perspective.
How can investors asses Standard Chartered Bank’s wealth management products?
We have made it very easy to assess. The first step is that you open an account. You can walk into any of our branches, speak to any Relationship Manager. Our Relationship Managers are trained and certified and they can speak to you about investments. If you are digitally inclined, go online and invest. You can monitor your portfolio on the digital platform.because we have invested a lot on our digital platforms.
