Overselling Leads to Undervaluation, N'est Pas?

Dear Speculators,

Lamenting is my least favorite activity but I'm truly baffled at the magnitude of issues left unresolved in the country. Too many questions and no answer. Too many speeches and no action. Too many problems, yet no solution. The Nigerian economic situation is definitely one of a kind. First we had an oil price shock, then a currency crisis. A decline in share prices precipitated by an economic meltdown. Soon, double digit inflation led to negative real interest rates and suppressed bond prices.

We could spend weeks listing all our problems but that will do us no good. We could stay at the sidelines and wait for the problems to all go away but they never do. There is no such thing as a perfect stock market or a perfect economy. We do with what we have and that makes us who we are. A smart investor reaps profits all the way up and down in a stock market cycle. Empirically, market participants tend to over react in booms and burst. They get overly excited and overbuy when the economy is booming, and become excessively pessimistic and oversell during a crisis. Right out there, there is excellent intrinsic value, both in undervalued stocks and absurdly high bond yields. Buy low, sell high means buy stocks when the market is down and sell when the market is up. Unfortunately, too many people do the opposite. Crisis come and go, recessions are temporary and economic agents always adjust to the prevailing market conditions.

Nigeria may have many issues but the biggest problem you have today is the cost of doing nothing. In our world, opportunity does not come once, it comes during every crisis. Find yours, TAKE IT!

Emeka Ucheaga,
Managing Partner,
Emeka Ucheaga Advisory

Comments

Brexit: Why the Market Got it Wrong

Dear Speculators, After 40 years of being in the European Union, the United Kingdom will no longer be a member nation of the EU after the exit plans have been finalized. The gloomy market prediction by top notch investors and analysts has now become a reality. The British pound has been "pounded" in the foreign exchange market, falling significantly against virtually every currency on earth. Pound sterling currently sits at a 30 year low against the dollar after shedding a record 11% in just one day. The equity market is a mess all over UK and Europe, banks have suffered the heaviest beating. $2 trillion has been wiped off global equities. At this point it will take a miracle and much more than $345b promised by the Central Bank to save the economy from entering a financial recession by 2017. Several market players were positioned for a stay in accordance with the opinion polls on Brexit even when the polls showed that a vote to remain wasn't significantl

CBN Floats the Naira and the Interbank FX Rate Takes a Dive

Dear Speculators, It is no longer news that CBN has liberalized the interbank foreign exchange market in Nigeria. This new fx policy will allow exchange rate for bank to bank transactions to be determined freely by market forces as against the previous fixed rate of N199. The CBN has also permitted foreign currency deposits in deposit money banks and discontinued the sale of foreign currencies to Bureau de Change in Nigeria. CBN has also promised to intervene periodically and in unpredictable fashion to clear up backlogs of foreign exchange demands whenever the need arises. Since Nigeria has still not devalued her currency, CBN intervention in this market may present an arbitrage opportunity for the primary dealers. In other words, any day could be Christmas for the banks. Obviously, the Central Bank now believes that the amount of dollars and other foreign currencies in circulation can provide much needed liquidity to satisfy the country's fx demands, thereby bring

Ten Surprises of 2018

Dear Speculators, Let's face it, 2017 was a bad year. The only things that went the right way in '17 were crude oil, equities and the decelerating pace of inflation. From fuel scarcity to periodic power outages, rising unemployment to terrorism perpetrated by herdsmen, Nigeria looked more or less worse of the same. As usual, the new year has started with a lot of hope but the long queues at filling stations is enough to beat out the optimism out of most realists. To help in putting the most important things into perspectives so we do not dwell less on minor things rather than channelling all our attention to major possibilities this year, we have put together 10 of the biggest surprises this year you should pay attention to. Ten Surprises of 2018 1. The stock market ASI crosses 65,000 2. Banks post record annual profits for 2017 3. 1-year TBills rates fall below 13% 4. Inflation falls below 12.5% 5. Nigeria's economy expands by more than 4% 6. Crude oil price exceeds $

Emeka Ucheaga Advisory

Search This Blog