Wealth management is a segment in banking that lenders are exploring to build sustainable wealth for their customers. Standard Chartered Bank Global Chief Investment Strategist, Steve Brice and Head, Wealth Management Nigeria, Simpa Adaba speak with Charles Okonji on Nigeria and global investment climates and what it takes to sustain wealth creation for clients. Excerpts:
How would you assess the bond market, from a global perspective?
From a trade tension perspective between the world’s two biggest nations (United States and China), we are not too concerned in the short term as negotiations regarding the issue is going pretty well. From our perspective, we think a deal is going to be struck in April which will calm down tensions temporally between the two nations.
In terms of the bond market outlook generally, in 2018, we saw a pretty bit of a perfect storm in terms of liquidity, we saw tightening policy thickness in terms of a rate hike, credit space widening, treasury yields going up, dollar strengthening which was quite a bad environment for bond investors in emerging markets including the challenging environment in terms of returns perspective. They have reversed their record this year as we heard information that the US Federal Reserve (Fed) is taking down on their rate expectation. We were supposed to have two more rate hikes, so that should be a positive environment for bond investors generally.
However, our preference is for emerging market bonds generally and the rationale for that is because generally, stocks are going to be cheaper, yields will be more attractive and the dollar–as we expected, may be slightly weaker on a global basis. That should be positive for those taking risks in emerging markets generally, particularly the bond market space. Even though our main focus is global, we still talk about the implication it can have for emerging markets. We were in Kenya a few weeks ago and now we are here in Nigeria, we expect people to be looking out for more yields and that will benefit both offshore and onshore debt markets around the frontier and emerging markets as well.
What prospects do you see in emerging and frontier markets? Should we expect to see more sell-offs, outflows or more inflows in the emerging market space?
We expect that the dollar does not strengthen which is our core view, then emerging market bonds should do well. We may see some volatilities which we can’t rule out that possibilities as there is a pretty big collaboration between short-term interest rate in the U.S and equity markets volatility which can be into the risky areas and in the bond market as well. But the big picture that I will say in emerging market bonds is, if you did see any risk opportunity rallying excessively, then you can be worried about.
What is your overview of the Standard Chartered Wealth Management operations in the emerging market and frontier markets such as Nigeria?
From a bank perspective, we are Asia/ African Middle East with a vast operation of our markets in those two regions. Some of them are emerging markets. We have our big operations for instance in China, India. We also have in more frontier markets including in Africa, Nigeria. It’s our specialty and that’s what we do.
There has been a sell-off in the equity market despite impressive earnings results from quoted firms. Investors are piling to the fixed-income market. What can you say is driving investors’ sentiments in this regards?
I think it is only a natural reaction. Talking about asset classes, in times of volatility and uncertainty, you would find people moving to where they see as safe to a great extent. While all asset classes have their proportions and it is essential that clients remain invested in all asset classes, in times where people are not sure, it is only natural for them to run to the fixed-income space where they have a sure bet on them. Also, looking at the Nigerian space, you will clearly understand that a lot of people have a history of equity in Nigeria so there is a flight to safety in times like this.
Do you see them turning back to the equity market?
Locally, even though we are not into equities, of course, there is a general understanding to how this is done. You would always see those flows. If something happens in the US while we understand the general, you will always find a scenario of people responding in the local market. But essentially, I think people are very clear on what fixed income is and I think in the last couple of months, talking about flows, we have had a lot of flows going into the fixed income space.
What are foreign investors’ perceptions of Nigeria?
I think it’s quite normal. People on the ground are generally being more pessimistic than those standing offshore and looking in. A different perspective has different value and they are much focused on, unless something is really fantastic in a country or really bad in a country. I think the global environment is very important to drive what is going to happen to local asset particularly currencies and bonds. Last year we were worried about what’s going to happen in the election circle. It went very smoothly, I think that gave people confidence and then you got the positive dollar liquidity environment and positive external environment. That way, we are going to be seeing more money coming into the country.
How does the issue of multiplicity of taxation affect investment in the wealth management space?
It is not something under our purview, but of course, in terms of what we do locally is about investing in government instruments and these instruments are tax-free. So to that extent, it is pretty very clear that we don’t see double taxation as an issue in that space because we are not getting our clients to ship money abroad. They are investing in instruments and it is basically coming back. Except you are moving to another country but what we are offering in Nigeria is not taking you out it is all within Nigeria pretty much.
Can you give a percentage allocation of your investments across the various asset classes?
Wealth management structure in Nigeria is not an access management structure. Meaning that we basically allow the clients to decide where they want to put their money and their choice is within the asset classes that we offer. In that regard it is really not us creating a framework for them; it is really their decision. For instance, if they show up, and they are more comfortable with the fixed income we will still tell them to diversify because there are awesome benefits when they diversify. But the reality is, it is evenly spread and there is no huge concentration anywhere from what we see broadly which is speaking to clients behaviour and not what we are influencing.
What are you going to do to bring more of your presence into Nigeria?
Speaking from a wealth business perspective, we are investing in the wealth business and me coming here, is part of that investment. This is the third time I am coming to Nigeria as I have been coming every year within the past three years and I think what I’m very impressed with when I come in here is that the team is doing a very great job. So generally, we have so much confidence in the local team here and we expect that there is more to come. I think it is a good business for us and we want to continue investing in it.
How does your bank view 2019 and what preparations it is making to get the best out of it?
We do see volatility as being the new norms. In 2017, global equity market went straight as there was no volatility. So, given that short-term interest rate went up we expect a two-year cycle rate hike to feed into volatility. So that 2017 scenario is the least likely one for us but if we see it in equity market volatility global inferences we will say it is a viable opportunity.
Because we are concentrating more on global growth, we can see central bank policies are being supported and that is why we are saying we should prepare and react. At the beginning of December, we were a little bit worried about the short-term outlook for equities, so we were a little bit anchoring down and at the beginning of January we are going to move a bit higher and that was what we meant by reacting to opportunities when they arise. So we will be monitoring the fundamentals as well as the market performance, as we go forward to see when people should take risk off the table or when should they add risk.
The derivative market in Nigeria is still picking up. How is the bank playing in the market given that the growth in the economy is a market that has already demonstrated a lot of potentials?
We do not do derivatives because the current structure of where we are in wealth management does not include derivatives, but the reality is that the derivatives market would only take a few from the level of development in that market. So it’s going to be punctual and I think to an extent, regulators are well aware of the understanding that they have. But the market itself must understand this product. We do not create products, we look at products that already exist with the Federal Government bond for example, and the issuer is the federal government.
