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BusinessDay 09 Apr 2018


Monday 09 April 2018 28 BUSINESS DAY This is M NEY A daily guide to your Personal Finance • Savings • Travel • Debt & Borrowing • Utilities • Managing your Tax Will your money last as long as you do? For how long do you expect to live? It’s anybody’s guess but seriously, lifespans are steadily increasing and building a nest egg for your retirement is only one aspect of retirement planning; the other important aspect, is ensuring that those savings you have been accumulating over decades, actually last at least as long as you live. One of the greatest challenges to financial security is the transition from earning regular income and accumulating assets to actually drawing down on those hardearned assets over what could end up being almost a third of your lifetime, with improved healthcare, diet, exercise and education. As we continue to hope and pray for long life and prosperity, we must consider the “risk” of longevity and its implications for retirement planning. With medical advances, it is increasingly possible that today’s healthy 60-year-olds may live well into their 90s and beyond. In some countries there are calls to increase the retirement age to 65 or even 70. Withdrawal risk keeps many retirees awake at night, as they must determine how much they can realistically afford to draw down from personal savings and investments without seriously depleting their capital. The rate values after say 20 years. Some of these scenarios assume 100% cash, 100% bonds, 100% stocks along with 25/75, 50/50 and 75/25 mixes. One rough rule of thumb is the “100 minus age” rule, which suggests that you subtract your age from 100: The result is the percentage of your assets to allocate to stocks; this means a 65-year-old should retain only 35% of his or her money in stocks; this could put a retiree at risk. An investment strategy that is too conservative can be just as dangerous as one that is too aggressive, as it not only exposes your portfolio to the effects of inflation but also limits the long-term upside potential that stock market investments offer. If you are too aggressive about cutting exposure to stocks too soon, you could hinder the growth of your nest egg and this could leave you with less than you need. Yet as you approach retirement, you badly need growth and have so much to lose if there is a prolonged bear market. Being too aggressive can mean assuming too much risk in volatile markets. Nowadays one is encouraged to continue to retain stocks and stock mutual funds in a portfolio to have any prospects of long-term growth. The “artificial” deadline that retirement appears to present is becoming less practical and should not be what rigidly drives planning decisions. What is thus required, is a strategy that seeks to keep the growth potential for your investments without assuming too much risk. After an “official” retirement age of 60, there is a real possibility that you may need 30 more years of retirement income and the ideal should be to find a balance between growth and capital preservation. Can you afford to retire at the traditional age of 60? The truth is that most people can’t. In your fifties, it is already becomat which you withdraw money from your assets is one of the most important factors affecting how long they will last. If you underestimate your needs, your money could run out too soon leaving you unable to live the standard or quality of the lifestyle you envisaged, or leave you dependent on your children or other relatives. For years, financial advisers have presented the 4% rule for retirement, which is a rough guide for portfolio withdrawals in retirement. The basic premise is that you withdraw a conservative 4% to 5% of your portfolio in the first year of retirement and then every year afterwards you withdraw the amount you took out the previous year with an inflation adjustment. Many investors end up withdrawing well over 10% of their portfolio each year to support the lifestyle they have become accustomed to. Indeed many people spend more in their early years of retirement when they travel and “enjoy the fruits of their labour.” This can rapidly deplete that portfolio. However, even though this initial outlay can seem a little worrisome initially, it does tend to even out in later years.3 Others are very pessimistic and scared of the prospect of being dependent on family in their later years and after building a portfolio of Certificates of Deposit, Bonds and dividend yielding stocks only withdraw interest and dividends and are too scared ever to touch principal or liquidate stocks; this also has implications for their living standards. So what is a safe withdrawal amount? It is virtually impossible to give precise guidance as to how much you can afford to spend from your savings in any given year; no simple solution exists and investors’ withdrawal rates will vary from person to person and according to the vagaries of the markets and their particular needs. Clearly there are many considerations to be taken into account including, your age and health, the overall size and composition of your retirement portfolio, your objectives, your spending pattern and lifestyle, and the fluctuation of your investment returns, the impact of inflation and the exchange rate on your assets and cost of living. Retirees must naturally be cautious particularly where portfolios are not well diversified and investments underperform for long periods and interest rates remain relatively low. Developing a plan for this spending phase can be difficult, as obviously no one knows how long he or she might live. It is important to seek professional advice to plan with the appropriate timing that makes sense given your overall goals and your own unique situation. In the past, conventional wisdom was to begin to divest from stocks as one approaches retirement, and then migrate to bonds and cash as safer guaranteed investments, stocks being volatile in the short term. Several studies have been carried out using various portfolio compositions to see what withdrawal rates would leave portfolios with positive ing clear whether or not you have enough money to last a lifetime and then some. If you know that you aren’t ready for retirement financially or otherwise, then you will simply have to work for longer than planned, and its time to think of what you will be doing in the years ahead. The generation approaching retirement age, have to a large extent redefined the traditional view of retirement; they are radically reshaping societies views of how “older” people are supposed to behave. From the traditional view of relaxation, leisure, and comfort, it is a time for renewal, growth, new opportunities, selffulfillment and brand new challenges. But this does need planning. Nimi Akinkugbe has extensive experience in private wealth management. She seeks to empower people regarding their finances and offers frank, practical insights to create a greater awareness and understanding of personal finance. For more personal finance tips, contact Nimi: Instagram and Twitter: @ mmwithnimi, Facebook and Google+: ‘Money Matters with Nimi’. www. moneymatterswithnimi. com, or send us an email info@ moneymatterswithnimi. com Nimi Akinkugbe has extensive experience in private wealth management. She seeks to empower people regarding their finances and offers frank, practical insights to create a greater awareness and understanding of personal finance. For more personal finance tips, contact Nimi: Email: info@ moneymatterswithnimi Website: www. moneymatterswithnimi. com Twitter: @MMWITHNIMI Instagram: @ MMWITHNIMI Facebook: MoneyMatterswithNimi

Monday 09 April 2018 BUSINESS DAY Cowry Weekly Financial Markets Review & Outlook 29 ECONOMY: Business Activities Expand Faster in March 2018 as MPC Retains Policy Rates… Recently released Purchasing Managers’ Index (PMI) survey report for March 2018, showed faster expansions in both the manufacturing and non-manufacturing businesses. The latest survey results also reinforced the fact that business optimism about the economy was stronger than it was a year ago. The faster expansion in PMI could be attributed to the seasonal pick up in the economic activity observed in the month of March. According to the survey, the manufacturing composite PMI stood at 56.7 index points in March 2018 (faster than 56.3 index points in February 2018), the twelfth consecutive expansion. The increase in manufacturing composite PMI was driven by faster expansion in new orders, to 56.1 in March 2018 (compared to 55.6 in February 2018); faster expansion in production level to 59.1 in March 2018 (from 57.8 in February 2018); and faster expansion in purchase of raw materials/ inventories to 59.4 in March 2018 (from 58.1 in February 2018). However, a slower expansion in supplier delivery times to 56.6 was recorded in March 2018 (from 57.0 in February 2018). Further analysis showed that input prices in March 2018 slowed to 61.1 (from 65.4 in February 2018), occassioned by increased completion of the backward integration projects by the corporate entities which was propelled by Federal Government policies. This has helped in lowering selling prices as the output prices slowed m-o-m to 52.1 index points from 55.9 index points in February 2018. On the flip side, New exports orders declined faster to 36.4 in March 2018 (from 42.0 in February 2018). Meanwhile, the non-manufacturing sector extended its advance but at a faster pace as the non-manufacturing composite PMI increased to 57.2 in March 2018 (from 56.1 in February 2018), the eleventh consecutive expansion. This was partly driven by faster expansion in business activity and incoming business to 58.7 in March 2018 (higher than 55.6 in February 2018) and 55.8 (higher than 53.7) respectively. Other notable improvements were the new exports orders that recorded slower contraction to 39.0 in March 2018 (from 34.7 in February 2018) and imports that declined faster to 38.5 in March 2018 (from 39.1 in February 2018). Elsewhere, at the end of the 2-day policy meeting of the Monetary FOREX MARKET: Naira Appreciates against USD for Most Dated Forward Contracts… In the week under review, the local currency appreciated week-on-week (w-o-w) against the U.S. dollar at the Investors & Exporters Forex Window (I&E FXW) by 0.05% to close at N360.01 amid weekly injections by Central Bank of Nigeria (CBN) of USD210 million into the foreign exchange market; of which USD100 million was allocated to Wholesale (SMIS), USD55 million was allocated to Small and Medium Scale Enterprises and USD55 million was sold for invisibles. Elsewhere, the Naira/ USD rate remained unchanged at the interbank foreign exchange market, the parallel (‘black’) market and the Bureau De Change segments at N330.00/USD, N362.00/ USD and N360/USD respectively in line with our expectation. Meanwhile, all dated forward contracts at the interbank over-the-counter (OTC) segment appreciated – spot rate, 1 month, 2 months, 3 months and 6 months contracts fell by 0.02%, 0.07%, 0.13%, 0.23% and 0.40% to close N305.60/USD, N363.73/USD, N367.62/ MONEY MARKET: NIBOR Falls for All Maturities amid FAAC Inflows Worth N647 billion… In the week under review, Central Bank of Nigeria (CBN) auctioned treasury bills worth N95.20 billion via the primary market; viz: 91-day bills worth N9.52 billion, 182-day bills worth N17.60 billion and 364-day bills worth N68.08 billion. Their respectively spot rates fell to 11.75% (from 11.95%), 12.70% (from 13.00%) and 13.04% (from 13.15%). Also, T-Bills worth N748.69 billion were sold via Open Market Operations (OMO). The outflows were partly offset by inflows worth N528.90 billion in matured treasury bills. Nevertheless, NIBOR fell for all tenor buckets amid FAAC inflows worth N647 billion: NIBOR for overnight, 1 month, 3 months and 6 months tenor buckets fell w-o-w to 4.56% (from 7.6%), 14.64% (from 14.85%), 15.28% (from 16.01%) and 17.06% (from 17.79%) respectively . Elsewhere, NITTY fell for most maturities tracked on renewed bullish activity: yields on the 3 months, 6 months and 12 months maturities fell to 13.61% (from 14.43%), 14.31% (from 14.97%) and 14.90% (from 15.01%) respectively; however, yield on the 1 month maturities rose to 14.09% (from 13.40%). Meanwhile, Standing Lending Facility (SLF) fell w-o-w by 18.38% to N233.58 billion while Standing Deposit Facility BOND MARKET: FGN Eurobonds Prices Appreciate in Value Across All Maturities Tracked… In the week under review , FGN bonds traded at the over-the-counter (OTC) segment rose for most maturities tracked. The 10-year 16.39% FGN JAN 2022 debt, the 7-year 16.00% FGN JUN 2019 debt and the 5-year, 14.50% FGN JUL 2021 debt appreciated in value by N0.33, N0.12 and N0.40 respectively; their corresponding yields fell to 13.50% (from 13.62%), 13.79% (from 13.92%) and 13.73% (from 13.89%) respectively; while the The 20-year, 10% FGN JULY 2030 debt decreased in value by N0.57 and its yield rose to 13.68% (from 13.65%). Meanwhile, FGN Eurobonds traded on the London Stock Exchange appreciated in value for all maturities tracked – the 10-year, 6.75% JAN 28, 2021, the 5-year, 5.13% JUL 12, 2018 and the 10-year, 6.38% JUL 12, 2023 increased in value by N0.57, N0.01 and N0.66 respectively; their corresponding yields fell to 4.56% (from 4.78%), 4.63% (from 4.71%) and 5.13% (from 5.28%) respectively. At the OTC market, we anticipate bullish activity with resultant price increase amid expectation of boost in liquidity. Policy Committee (MPC) on Wednesday, April 4, 2018, the Committee voted to retain all rates – Monetary Policy Rate (MPR) at 14% with the asymmetric corridor at +200 and -500 basis points around MPR, Cash Reserve Ratio (CRR) at 22.5% and Liquidity Ratio at 30%; thus, prioritizing its non-expansionary policy stance above real output growth consideration. Amongst other positive considerations mentioned by the Committee were the favourable domestic developments and positive outlook for 2018 amid foreign exchange stability and strong global crude oil prices. However, the MPC noted risk to domestic developments to include low level of credit to private sector which is a constraint to real sector growth, rampant herdsmen attacks, near-term electioneering spending and rising yields in advanced economies while it also urged the quick passage of the 2018 budget in order to stimulate economic activity. We opine that in order to justifiy a downward review of the policy rate, inflation rate would have to moderate sufficiently below the 14.33% February 2018 reading while external reserves would have to be at a reassuring level. However, potential inflationary pressure due to near-term political spending remains a threat, thus necessitating a cautious stance by the monetary authority. USD, N371.41/USD and N385.55/USD respectively. This week, we expect stability in exchange rate amid further accretion to the external reserves as global oil prices retain its upbeat and CBN continues with the weekly intervention. (SDF) increased w-o-w by 276.32% to N618.20 billion; indicative of excess financial system liquidity. This week, treasury bills worth N476.21 billion will mature via both primary and secondary market, hence we expect boost in financial system liquidity with attendant moderation in interbank rate. This, however, should warrant increased OMO auctions in order to mop up excess liquidity. EQUITIES MARKET: The Nigerian Equities Market Falls by 1.60% on Renewed Bearish Activity… In the just concluded week, the local bourse fell by 1.60% on profit taking activity as all the sectored sectored guages closed in the red territory. The twin market performance measures, NSE ASI and market capitalisation closed lower at 40,841.14 points and N14.75 trillion respectively. The NSE Banking, NSE Insurance, NSE Consumer Goods, NSE Oil/Gas and NSE Industrial Indexes fell by 1.33%, 0.07%, 1.73%, 2.27% and 2.09% to close at 513.67 points, 150.98 points, 978.14 points, 337.37 points and 2,146.20 points respectively. Elsewhere, Naira votes and transacted volumes increased w-o-w by 59.56% and 14.55% to N26.56 billion and 1.76 billion shares respectively. On the sidelines of trading activities, FCMB Group Plc (FY Dec 31, 2017) recorded a 3.67% decrease in revenue to N169.88 billion as well as a 34.37% decrease in profit after tax to N9.41 billion. The company also proposed a cash dividend per share of N0.10 which translated to a dividend yield of 4.26% based on Friday’s closing share price of N2.35. This week, we expect cautious trading activity in the market as investors await the first quarter results. POLITICS: Buhari Approves USD1 billion to Fight Insecurity Across the Country… In the just concluded week, President Muhammadu Buhari, following a meeting with the Minister of Defence, Colonel Mansur Dan-Ali and the security chiefs in Abuja, on Wednesday, April 4, 2018 approved the release of the controversial USD1 billion fund from the Excess Crude Account (ECA) for the purchase of military equipment. The approval was reportedly deemed necessary after discussions bordering on the increasing series of insecurity across the country. The decision to deplete the ECA followed an earlier recommendation by the National Economic Council (NEC) in December 2017, presided over by the Vice-President, Professor, Yemi Osinbajo, where the Nigerian Governors’ Forum (NGF), comprising Governors of the 36 states of the Federation, consented to the withdrawal of the USD1 billion from ECA in order to prosecute the fight against insurgency in the North-east. The ECA stood at USD2.317 billion as at December 13, 2017. However, President Buhari’s approval for withdrawal of the fund was resisted by other stakeholders who argued that the ECA belonged to all three tiers of government and would require the 36 state Houses of Assembly to consent to the withdrawal of monies from the ECA by the Executive. Ekiti State Governor, Ayodele Fayose, also challenged the modalities for approval, noting that it will be against the principle of federalism for the President, being just one of the federating units, to approve spending of money belonging to the three tiers of government. Corroborating Governor Fayose’s stance, the Vice Chairman of the Senate Committee on Media and Publicity, Senator Ben Murray-Bruce, stated that the presidency does not have the power to approve such amount of money but can only recommend for approval by the National Assembly. Meanwhile, the military gave re-assurance that the fund would be used for training, recruitment and purchase of equipment. We support investments in the security equipment and facilities as well as intelligence gathering in order to forestall attacks on soft targets. Moreover, we believe the fight against insecurity in the country should take a multipronged approach aimed at educating and empowering the youths to prevent delinquent behavior in the society or being deployed as feedstock by terrorists. Disclaimer This report is produced by the Research Desk of Cowry Asset Management Limited (COWRY) as a guideline for Clients that intend to invest in securities on the basis of their own investment decision without relying completely on the information contained herein. The opinion contained herein is for information purposes only and does not constitute any offer or solicitation to enter into any trading transaction. While care has been taken in preparing this document, no responsibility or liability whatsoever is accepted by any member of COWRY for errors, omission of facts, and any direct or consequential loss arising from the use of this report or its contents. Cowry Weekly Stock Recommendations As At Friday 06 April 2018 Cowry Asset Management Limited (Member of the Nigeria Stock Exchange) Plot 1319 Karimu Kotun, Victoria Island Lagos Tel: +234-1-2715008-9; +234-1-2716614-5

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