A butcher’s penthouse full of dollars just exploded and it’s raining dollars. All you need to do is focus on catching as much as you can if you can. But as your vision locks into the sky to catch a dollar, it sights debris of falling knives. Like to try your luck?
Black Monday took the world markets by storm, sending the oil price to levels not seen since 2016. Global stock markets have turned bearish and the Covid-19 is now a worldwide pandemic. Everywhere you look, it’s red. It’s probably worse at home.
Investing in Nigeria’s money or capital market is not so far from this somewhat grotesque depiction of falling knives. Anywhere you look, it’s a setup of opportunities and risks. The stock market is cheaper by the dozen, so dividend yields are at all-time highs. You will be forgiven to ignore such mouthwatering yields knowing full well that these are Nigerian Stocks. In Nigeria, stocks hardly have a bottom during a protracted period of uncertainty. What about the money market?
Treasury bills are like paying the government to keep your money for you, it’s value accretion. Investing in the government’s Eurobond appears a logical investment option, after all, it’s a great hedge against a potential devaluation. But it also has its set of falling knives. The oil price war could move badly against Nigeria, affecting the government’s revenue and the country’s ability to service its debt obligations. Nigeria has never defaulted as a sovereign but it only takes one day to start.
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Real Estate is typically a safe haven for most Nigerians when the economy is in turmoil. But many, who staked in the recent economic crisis of 2016, recorded limited capital appreciation. How many can you buy to hedge against losses? With vacancy rates and unsold units on the increase, this sector offers little comfort in a floundering economy.
The CBN responded on Thursday that it had no plans to devalue the naira, blaming the recent spike in exchange rates on speculators and threatening to “invoke the full weight of applicable sanctions on any persons and authorised dealers found to be invoked in such disruptive and speculative market behaviour.” The statement will perhaps do little to calm an already spooked market. Global markets are in a tailspin, investors are withdrawing their money from emerging markets like Nigeria and all impending foreign direct investment deals will likely be placed on hold. Anywhere you look, it’s falling knives. So, what do we do?
Some of the words of wisdom from the world’s greatest investor, Warren Buffet come in handy. Keeping your powder dry suggests cash is king at times like this. According to Warren Buffet, “Only when the tide goes do you see who’s swimming naked.” Investors could be wiser to hold cash while waiting for the dust to settle. Prices of assets are likely to keep falling until the current Coronoil- (Coronavirus + Oil crash) induced market crash subsides. As you look up to the sky, buy the dip but avoid a falling knife.
