The Implication of the Global Tension Arising from the Russia-Ukraine Conflict.
On the 24th of February 2022, Russia launched the highly dreaded, though anticipated, invasion of Ukraine. Whilst the impact of the conflict will be more profound in Europe, the global tensions arising from this war could also portend deep implications for you, the Nigerian investor.
What you should know:
1. Risk-Off: Investors will switch off their appetite for risk which would lead to the selloff from risky assets and a subsequent fall in prices as witnessed over the last few weeks.
2. Stronger USD: Investors would demand the safest and dominant currency.
3. Global Supply Disruptions: most especially in Europe as production ease or halt, leading to higher prices of global commodities: crude oil prices, wheat, soybeans palm oil, cocoa, cotton, rubber, oat, etc.
Possible impacts on Nigeria:
1. Selloff of Risky assets may lead to the selloff of FGN Eurobonds as witnessed during the COVID-19 Crises of 2020 – Higher Yields and Deeply Discounted Prices. This presents an opportunity to buy these Bonds at good prices if investors plan to hold to maturity.
2. High yield environments are not great periods to borrow, hence, the FGN may experience difficulties in issuing more Eurobonds to raise capital to support its current Budget Deficit. The FGN may focus on other means of raising capital.
3. Global Supply disruptions may lead to higher costs of raw materials for companies that are commodities–dependent most especially companies in the Consumer Goods Sector. This may affect profit margins in the short term.
4. The rise in commodity prices is expected to be beneficial to companies that sell commodities as their core business. Companies such as Oando, Seplat, Okomu, and Presco.
Overall, we do not expect a material impact on the Nigerian Economy and markets given that most FPIs are not dominant in the market as evidenced over the years. Hence, we do not expect any response from the national economic managers at this point. However, the situation will be monitored very closely to see how things develop.