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What does Coronavirus outbreak mean for investors?

The Coronavirus outbreak is alarming public health authorities, spooking the global equity markets and sinking stock markets into the red.

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Nigeria’s forex challenges seen driving the spate of insider dealings, What does Coronavirus outbreak mean for investors?

From Wuhan, one of China’s most populous cities, the 2019 novel Coronavirus (2019-nCoV) has now spread to 74 more countries, apart from China with over  92,000 confirmed cases, 3,130 deaths and 48,451 recovered cases (as at 03 March 2020). Expectedly, the Coronavirus outbreak seems to be on everyone’s mind, alarming public health authorities, spooking the global equity markets and sinking stock markets into the red.

China’s importance in a globalized economy has dramatically increased since the 2002-2003 Severe Acute Respiratory Syndrome (SARS) outbreak, the most obvious precedent for today’s crisis that originated in the Guangdong province of China and spread to more than two dozen countries. Then, China comprised less than 4% global GDP; today, China is the world’s second-largest economy, currently accounting for 16% of the world’s GDP and contributing 24% of the global imports.

What does Coronavirus outbreak mean for investors?

Therefore, putting brakes on Chinese factories’ output and disrupting global supply chains running through China will unavoidably have a ripple effect on international businesses, world economy and global growth. There are also concerns over consequences of the United States, the world’s largest economy, being forced to implement a lockdown similar to the one imposed by Chinese authorities.

As the novel COVID-19 strain of the coronavirus moves far beyond China’s borders, it is difficult to fully evaluate the scope and severity of the risks on investments. As the Coronavirus spreads, so do fears of a financial collapse. That fear is causing a lot of selling and a lot of losing. Notably, world stock markets have tumbled since the first death was announced on January 11.

[READ MORE: Coronavirus: Cost of Chinese products in Nigeria surge)

While the only confirmed case of coronavirus in Nigeria remains the index case of the Italian citizen confirmed on the 27th February, the country can’t stay unscathed with the happenings in China—a chief trade partner to Nigeria. The Nigerian Stock Exchange (NSE) lost a whopping N308 billion (USD845 million) less than 24 hours after reporting the index case.

Investors lost N209 billion (USD573 million) on Monday 2nd March as the stock market dipped further. The price of oil, Nigeria’s major source of public revenue, has already taken hit as a result of the ongoing outbreak; there could be nothing worse for an already struggling economy, than having her source of revenue negatively impacted.

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Markets do not like uncertainty, thus investors are understandably nervous with the spread of the coronavirus disease. We do not know, with certainty, how far the virus has spread and how long it might last; how much fear inhibits travel, consumer spending, manufacturing, and trade; and the capability of public health institutions to stop the spread of the virus. These uncertainties have led to increased volatility in the stock market as investors scramble to adjust their portfolios to factor in the virus’ potential for damage to the global economy and assess its further impact on asset prices.

One major question every investor should strive to answer is: Is my investment short or long term? Another is: Is there evidence linking global epidemics with long-term investment fundamentals?

[READ ALSO: Coronavirus: Prices of face masks, hand sanitizers rise by 300%)

Health: Nigeria records first case of coronavirus

No cause for alarm 

Past experiences show that, in general, epidemic outbreaks tend to have temporary impacts on markets and economies. In fact, markets have short memories regarding epidemics. Markets may initially react to the uncertainty, but global equities tend to rebound after temporary decline.  Besides, this isn’t the first new virus we’ve seen, and this won’t be the last. SARS, Zika, Influenza H1N1 and others have all come and gone.

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This is not the time for a knee-jerk reaction as global efforts continue to combat the coronavirus epidemic. Temporary phenomenons and markets go through cycles like this. Viruses will get contained and investors will return to corporate and economic fundamentals. One of the most important things an investor can do in the face of market uncertainty is to make sure that investment portfolios are at the right risk levels. Market volatility helps build wealth over a period of time. For investments whose timelines are on the shorter side, such investments are already at a low level of risk. This insulates you from market volatility—whether it’s related to disease outbreaks or otherwise.

The lauded investor Warren Buffett advised investors not to allow coronavirus to infect their investment strategy. “It is scary stuff. I don’t think it should affect what you do with stocks,” he told CNBC’s Becky Quick in an interview that aired February 24 on “Squawk Box.” 

No need for any fear-based changes. Investors are encouraged to continue disciplined investing through systematic investment plans (SIPs) and stick to their asset allocations. Panicking to sell out as markets slide would only lead to further losses.  Staying the course can help handle the downturn, and potentially stay the course.

In tuning out the noise and sticking to the long-term plan, you should identify opportunities to immunize your portfolio against coronavirus and other possible similar outbreaks. Diversification premium is an investment cure for coronavirus. Having a mix of assets across sectors and geographies is the best way to ensure that one spell of volatility does not take your portfolio down.

Despite the perceived and actual threats from the coronavirus, high-quality bonds, gold and safe-haven currencies like the U.S. dollar have rallied while more production-intensive commodities like oil have suffered, as have the stocks of companies domiciled in or exposed to the affected areas. Funds focused on sheltering capital, strategic bond funds, and multi-asset funds with a cautious approach are good additions if you are looking to add diversification to an equity portfolio. The current situation should also be seen as an opportunity to invest for long-term in quality companies.

[READ FURTHER: Coronavirus: World Bank, IMF to support Nigeria and other member countries affected)

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Coronavirus causes prices of Chinese products in Nigeria to soar, Coronavirus: Cost of Chinese products in Nigeria surge

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Investors are admonished to be on alert for fraudsters attempting to play into our natural emotions of fear and greed during this period of uncertainty.  There have been spikes in investment opportunities with unbelievable return-on-investment and get-rich-quick schemes. At the risk of sounding like a broken record on this topic, there are no sure things or get-rich-quick strategies when it comes to investing.

While it’s unclear how many people will ultimately be affected by COVID-19, or how many weeks or months it will take to run its course, if it holds true to similar epidemics, however, it will run its course. Investors are enjoined to stay alive even as they seek to safeguard their investments from the outbreak. Standard recommendations to prevent infection spreading include regular hand washing, covering mouths and noses when coughing and sneezing, thoroughly cooking meat and eggs, etc. Also, avoid close contact with anyone showing symptoms of respiratory illness such as coughing and sneezing.

 

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Written by Oluwaseun Oguntuase

Lagos, Nigeria

  

 

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    Columnists

    Book of States 2020: Vast resources, low industrial development

    State governments have been heavily reliant on FAAC distribution to meet recurrent expenditure, thus making no room for capital spending. 

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    Oil Price Crash: Governors to meet on budgetary and economic issues, Insecurity: Governors to meet on Wednesday over rising insecurity

    The Nigerian Investment Promotion Commission (NIPC) in a recent report titled “Book of States 2020” highlighted the investment prospects of the 36 states of the federation including the Federal Capital Territory (FCT) to steer attention to the subnational investment opportunities in Nigeria. We note that the report is an outcome of a partnership between the commission and the Nigeria Governors’ Forum (NGF) to showcase the key investment opportunities for each state.

    The report focused on the key areas of physical capital (airports, railway stations and seaports), resources (natural and minerals) and demography (population and labour force) of each state including their Internally Generated Revenues (IGRs), budget spending and household consumption.

    While we acknowledge the decrepit infrastructure as a major hindrance to the growth of businesses and economic prosperity of many states, we note the little emphasis placed by the states on financing capital projects to attract private sector investments. Over the years, state governments have been heavily reliant on FAAC distribution to meet recurrent expenditure, thus making no room for capital spending.

    The truth is that as long as state governments do not make desperate efforts to develop their internal revenue-generating capacity, the states in the country would continue to operate an inefficient rent collection system where they rely solely on FAAC allocation to meet basic needs such as paying workers’ salaries.

    In our view, we believe the efforts to revive the ailing status of many states depend on the effectiveness and soundness of policies made to propel investments. Currently, Nigeria has enormous potentials to improve tourism given its ample amount of resources to attract both local and international tourists. Many countries in the continent such as South Africa, Kenya and Morocco have made great fortunes from tourism.

    Over 50% of the states have recorded no foreign direct investments over time due to little or no requisite infrastructure needed to attract capital inflows amid untapped resources in these affected regions. Also, we believe the Federal Government needs to relax its control on some of the state-owned resources to enable the states better exploit these resources.


    CSL Stockbrokers Limited, Lagos (CSLS) is a wholly-owned subsidiary of FCMB Group Plc and is regulated by the Securities and Exchange Commission, Nigeria. CSLS is a member of the Nigerian Stock Exchange.

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    How EFCC’s proposed lifestyle audit will affect your finances

    While enforcing lifestyle audit, the relevant agencies must take note of the fact that social media influencing has become a serious business in Nigeria.

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    Access, GTBank, two others pay PWC & EY N1.5 billion as Audit fees in H1 2020 

    On Wednesday, the 24th of March 2021, Lauretta Onochie, a presidential aide, took to Twitter, to announce the legality of lifestyle audit in Nigeria, with a view to tackling corruption. She also mentioned that those who flaunt lifestyles they cannot afford can now be investigated by any of the antigraft agencies such as the Economic and Financial Crimes Commission (EFCC) and Independent Corrupt Practices Commission (ICPC) to give information about their source of wealth.

    Some Nigerians have already expressed delight in the government’s action, hailing it as a great move, while others have heavily criticized it, adding that such lifestyle audit should be for those in public offices and those holding political positions in Nigeria.

    READ: $1.3 billion Malabu oil field sale was lawful – Former Shell Executive

    The implication of lifestyle auditing

    Lifestyle audit basically involves an inquiry into the lifestyle of individuals for the purposes of revealing unreported cases of unjust self-enrichment and suspicious affluence that may suggest that such individual perpetrates fraud or is involved in corrupt activities. In carrying out such an audit, there is a comparison of the living standards of the said individual with his known source of income.

    There is also an inquiry into the consumer index of such an individual, which includes the income of his or her spouse, the monthly expenses of the family, the declared assets of the family and related personal expenditure of such individual. It is considered a major tool in fighting corruption.

    Whether such audit is conducted in the public sector, i.e. on those in public offices or employees of government, or whether it is carried out in the private sector, the major goal of a lifestyle audit is to consider whether or not an individual is living beyond his or her legal means, and whether there is a possibility that such lifestyle is funded by corruption or fraud.

    If during the course of the audit, the individual is unable to prove the source of funds or income, such funds may be taxed as undisclosed income, and if it is discovered during such investigations that the individual is involved in fraud or any criminal related activity, such individual may be prosecuted.

    READ: FBI ranks Nigeria 16th in its 2020 International Crime Victim Countries

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    Is Nigeria the first to legalise lifestyle audit?

    Countries like Kenya and South Africa have been carrying out lifestyle audits. Kenya for instance has embraced lifestyle audit as a means to reduce corruption in both the private and public sectors. Government institutions in Kenya audit their staff by comparing the lifestyle of such staff with their income, in order to reveal any inconsistencies.

    In the private sector, lifestyle audits are also carried out on employees who declare their wealth, allowing for an investigation into the existence of any questionable source of income or revenue.

    The Ethics and Anti-Corruption Commission of Kenya in 2008 took a financial controller who was earning Sh306, 000 a month to Court. But the EACC said he owned seven houses or plots, four vehicles, six bank accounts (one in London) and had Sh4 million in cash in his house. What the EACC wanted was for the court to agree he had “unexplained assets” and that the assets should be seized. The lower court rejected the EACC’s case on a variety of grounds based on the Constitution. However, the Court of Appeal held that the Financial Controller had not shown how he had acquired some of the assets.

    READ: 6 types of pension plans: Deciding which is right for you

    In 2018, the Kenyan Government intensified the war on graft by announcing that all public servants will undergo a compulsory lifestyle audit to account for their sources of wealth. In an article published by the Katiba Institute, Kenya, on 27 June 2018, it was reported that various corruption scandals have been exposed and over 40 persons have been arrested as a result of corruption scandals resulting from lifestyle audit in Kenya.

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    In South Africa, the government has carried out lifestyle audit for the public sector in order to curb corruption and fraud. However, lifestyle audit in South Africa is not limited to the public sector as the South African Revenue Service (SARS) since 2007 has been carrying out lifestyle audit on private individuals and using it for several criminal investigations. The SARS encourages members of the public to report people living a lifestyle beyond their known means of income. The SARS would usually ask the individual to fill a questionnaire to aid them in their inquiry.

    Business Insider South Africa has stated in an article published recently, that SARS has been using lifestyle audits on private individuals since 2007 and they have used it to conduct thousands of criminal investigations.

    READ: Corruption erodes the constituency for aid programmes and humanitarian relief – IMF

    Possible challenges Nigeria may face

    While enforcing lifestyle audit in Nigeria, the relevant agencies may need to take note of the fact that social media influencing has become a serious business in Nigeria today. What usually happens is that these influencers present a lifestyle to the public which they may not be able to afford or which cannot be said to be at par with their income.

    The reason for such presentation is to get more followers on social media and attract brands and businesses that would usually enter into an agreement with them to influence the public to patronize the products of such brands in return for a fee. The question now arises, what becomes the fate of such influencers in the face of the legalizing of lifestyle audit in Nigeria? What effect would it have on their businesses since they are not considered illegal?

    In an interview with Elsie Godwin, a YouTube content creator, Lekan Bamidele, the Managing Partner of Lekan Bamidele & Co stated that there is a huge possibility that lifestyle audit may lead to an invasion of the privacy of the audited individuals which is an infringement of their fundamental human rights as guaranteed by the Constitution of the Federal Republic of Nigeria 1999 (as amended). This is because, in carrying out such audits, the private properties of such individuals such as their phones, bank statements etc. may be looked into even without their consent.

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    He also added that lifestyle audit may result in abuse by the authorities, as the Nigerian Police having no right to conduct lifestyle audit on Nigerians may want to usurp the powers of the relevant agencies; and that lifestyle audit should generally be restricted to public officials.

    However, based on the provisions of the Nigerian constitution the right to privacy is not absolute and an invasion of privacy would not be considered as an infringement where it is for the purpose of public morality, public order, etc. The actions of the agencies carrying out such audit may be considered as falling under this exception and would not be illegal.

    Moreover, since Nigeria still battles with issues such as police brutality and sometimes, unwarranted profiling which led to the recent #EndSars protest, lifestyle auditing may give unscrupulous officials the leverage to treat citizens with indignity and may also lead to the abuse of the entire auditing process. It, therefore, opens a lot of Nigerians to the risk of harassment and unnecessary profiling.

    Additionally, it is a notorious fact that one of the major problems facing Nigeria is corruption. Corruption is a phenomenon that has eaten deep into the systems and permeated every level of governance in the country and even the agencies of government. It may, therefore, pose a major threat to the smooth running and enforcement of lifestyle audit in Nigeria.

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    Conclusively, the relevant body or agencies should take these and more into consideration, and a formal structure should be put in place, and legislation enacted, in order to effectively carry out lifestyle audit in Nigeria. Also, there should be no overlapping of duties in the enforcement. That is, only agencies that are vested with such powers should exercise them. This would ensure that Nigerians are not faced with a situation where just any person would claim the right to investigate the source of their income.

     

    Written by Nwankwo Tochukwu

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