Billionaire Investor, George Soros has said that the strong dollar and the termination of the Iran Nuclear deal by the United States, is a major global threat to the European Union and to emerging markets like Nigeria.
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According to a Bloomberg report, Soros remarked that “We may be heading for another major financial crisis.”
Market/Economic Insight: The Weekly Brief (October 15th – 19th 2018)(Opens in a new browser tab)
Soros opined that America’s withdrawal in the nuclear deal with Iran and President Trump’s decision to pull out of the transatlantic trade deal with the EU is “bound to have a negative effect on the European economy and cause other dislocations, including a devaluing of emerging-market currencies.”
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Why this matters
- A stronger dollar has recently led to currency pressures in emerging markets like Argentina, Brazil, and Turkey.
- The combination of higher interest rates and a strong dollar typically leads to capital flight, resulting in higher portfolio outflows out of the country.
- Information from the Investor Exporter window suggests there is a $1 billion demand for forex outflows out of the country. This significant demand is said to be unnerving the CBN.
- The CBN has also recently issued warnings to banks and the BDC to ensure forex supply is available to business and leisure travelers as we approach the summer.
- This indicates the CBN is already bracing up for another round of forex hoarding.
Nigerians Stocks showing signs
- Stocks are a bellwether for what is likely to take place in the economy and if we are to rely on latest trading sessions, the message is loud and clear.
- The Nigerian Stock market has been experiencing a sell-off lately recording about 8 straight days of losses as the bears dominate trading sessions.
- Nigerian Stocks are likely to close negative in May only the 4th time in over 30 years.
- The last time stocks recorded these streak of losses was in March this year. If the latest losing streak is as a result of higher portfolio outflows then we might be in for a very long ride.