Emeka Ucheaga Advisory

Dear Speculators, Last week, we predicted that the Central Bank will raise rates, hold cash reserve ratio at 22.5 percent and retain liquidity ratio at 30 percent. We were accurate and the Monetary Policy Committee made the right decision. We believe the increase in monetary policy rate to 14 percent was a deliberate response to the sky high inflation rate which was reported earlier this month at 16.5percent.  Top investors and seasoned analysts were expecting a much different news though and most probably made the wrong bets. Although the CBN claimed that the main cause of the inflation were forces outside the purview of monetary policy, it is noteworthy to mention that money supply grew by 16.52 percent year-on-year against the provisional growth benchmark of 10.98 percent in 2016. Inflation grew by the exact growth in M2. This further reiterates the view of American Economist Milton Friedman that growth in money supply is the main cause of inflation. Essentially, how the

Dear Speculators, The inflation report is finally out and inflation rate appears to have trended upwards again to an 11 year high of 16.5% Year-on-Year. You will think after the floating of the Naira in the exchange rate market, prices of goods and services will immediately start to fall to reflect the new economic fundamentals. Apparently not! Prices will fall eventually but not so soon. We expect that importers who start to enjoy the new exchange rate will want to maintain current prices or slightly higher prices until losses suffered during the early months of the year due to stringent exchange rate controls are fully recovered. After these marketers have recovered their losses, they will then embark on a price war to gain more market share which will force prices downwards until it fully reflects the new exchange rate value. It is for this reason that economists refer to prices as sticky in the short run and slow to respond to changes in the economic conditions

Dear Speculators, Our world today is filled with uncertainty, both politically and economically. This high level of uncertainty has had both negative and positive effects on the bond market across the global economy. When investors are uncertain about the economic future, they troop to bonds which are regarded as safe havens. Bond prices has risen so high that the yields are now at historic lows in Western economies. Although, Nigeria currently enjoys political stability, the economy is in a terrible shape. This has encouraged more investors to dump equities for bonds in order to diversify, reduce the volatility in their portfolio and boost returns. Arguably, Nigerian treasury bonds may be the most attractive asset in the Nigerian market today. However, with bonds performing so well and stocks doing just the opposite in the last year, this presents a buying opportunity in the stock market. It might be a bad day to sell equities, but it definitely is a good day to buy them. In the

Dear Speculators, The mismanagement of the economy since oil prices nosedived in 2014 is overwhelmingly poor. Almost every economic problem in the country is attributed to the low crude oil price whether true or false. Crude oil accounts for less than 10% of the GDP, yet a collapse of the commodity price has managed to erode the value of Naira, spike inflation, increase unemployment, reduce electricity generation, reduce the asset quality of loans and investment, pull down the stock market and place Nigeria to the brink of a recession. This goes to show the level of vulnerability of the economy to oil price shocks. For over a year, we have heard more excuses than solutions from the government to the extent where we will beg a foreign nation to help diversify an already diversified economy. We don't need further diversification, we need to improve productivity! Policies that do not allow trade to flourish or hinder the ease of doing business should be discontinued. I

Dear Speculators, We just began the 3rd quarter of the year and we are delighted to see that some of our predictions for this quarter has already come to fruition (You can read up our previous articles and check our forecasts). The market is up about 15% since the beginning of the second quarter, banks stocks generally have rallied significantly with some of the best performers like GTBank jumping about 60%, First Bank and Access Bank both increasing about 25% in value within the last 3 months. Crude oil prices is now hovering around $50 but sadly Nigeria has been unable to profit a lot because of the fall in our crude oil production levels due to security challenges in the Niger Delta. However, the general economy has not performed as well as the stock market. For the first time since the second quarter of 2004, the Nigerian economy contracted, and another negative growth in the economic output of the country will put Nigeria in a recession. We all know the saying, "You nev