.

Sank re
I N V E S T M E N T S

How to Make Money in a Recession

Investment Strategy Call

May 25th , 2022

Fund Management
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Outline

The Recent Market Volatility

Why A Slowdown Is Likely

Investment Strategy: How to Weather The Storm

 The Recent Market Volatility
Since the last call
Since last call, the state of affairs globally has developed in sync with our projections. Geopolitical tensions have run hotter than we expected, vaulting monetary
policy normalization to a pole position. A resurgence in COVID-19 cases in China threatens global growth projections and more countries face dire fiscal conditions
as debt overhangs become more punishing.
3.8% (3.6%)
Total nonfarm payroll employment
increased by 428,000 in April. easing
from a February gain of 714K
8.3% (8.5%)
US CPI accelerated to a 40 year
high of 8.5% in March 2022,
before decelerating in April
3.6% (5.5%)
GDP decreased on a seasonally
adjusted q/q basis by 1.4%.
Growth remained positive y/y
50bps (25bps)
The Fed tightened by 50bps for
the first-time since 2018
N.B: * 2021 figures
6.2% (5.8%)
Unemployment rate has been increasing in
China since Q4 2021, currently sits at 6.2%.
2.1% (1.5%)
Both consumer and producer
prices (8%) in China rose above
expectations in April
4.8% (4.0%)
Growth of the real gross domestic product
(GDP) in China printed at 4.8% compared to the
same quarter of the previous year.
25bps
China cut reserve requirement ratio to boost
its economy, releasing US$83.2bn. 5yr
mortgage rates were also cut
6.8% (6.9%)
Unemployment rate of the European
Union was 6.2% in March 2022, down
from 6.3 percent in the previous month.
8.1% (7.8%)
Inflation in the EU remains elevated
worsened by spikes in energy prices
caused by the Russia-Ukraine war.
0.2% (0.3%)
IMF estimates EU’s FY growth at 2.8%, down
1.1% from earlier forecast for a 3.9% growth.
50bps (25bps)
China cut reserve requirement ratio to boost its
economy, releasing US$83.2 billion into banking
system. 5yr mortgages rates were also cut
3
 The Recent Market Volatility
Global Markets: Yield Curve
The shape of the US yield curve has been significantly altered in the last five months. Expectations of rate hikes led the first wave of interest rate movements before March,
while a more aggressive posture by the Fed to fight inflation pushed the yield curve higher. Inversions between the 10yr and 2yr as well as the 30yr and 5yr yields flashed in
April, warning of a possible recession in the offing

US yield curve Key considerations

3.50%
• Short term interest rates have risen sharply
3.00% 3.09% this year as the Fed begins its rate hiking
cycle.
2.50%
2.44% • Expectations of tighter Fed policy have
2.00% pushed previously dormant bond yields
higher.
1.90%
1.50%
• The yield on the 10-year US Treasury note
has already roughly doubled this year to
1.00%
3%, the first time it has been above that
level since late 2018, when the Fed was
0.50%
nearing the end of its previous tightening
cycle.
0.00%
1 Yr 2 Yr .3 Yr 5 Yr 7 Yr 10 Yr 20 Yr 30 Yr
2021 Q1-2022 May-22

Source: U.S. DEPARTMENT OF THE TREASURY 4

 The Recent Market Volatility
Global Markets: Equity Performance
A confluence of risk – geopolitical, Covid lockdowns in China, monetary tightening and recession risks – have created the perfect storm for risk assets. So far there have been
no fair-weather forecasts for sectors other than energy which accounts for only 5% in MSCI World and EM index. The indices are also skewed towards the US (69% - MSCI
World) and China (31% - MSCI EM) propagating the bearish performance from both countries' top equity markets to the Indices

MSCI Indices (rebased to 31 Dec 2021 = 100)

105
• In developed markets, the
negative reactions could be
traced to Fed’s tightening
100 policy. The Fed in March
raised interest rates since
2018 due to rising inflation
95
levels. This decision weighed
on stocks as investors begin
90 to unwind assets.

• Emerging-market equities
85
declined on concerns around
the recent China COVID
80 2022 lockdown as well as decline
MSCI WORLD: -16.64% in global economic growth.
MSCI EMERGING: -18.22%
75 MSCI FRONTIER: -18.17%%
MSCI EAFE: -16.68%%
70
Jan-22 Jan-22 Feb-22 Mar-22 Apr-22

MSCI WORLD MSCI EMERGING MSCI FRONTIER MSCI EAFE

Source: Bloomberg 5
 The Recent Market Volatility
Global Markets: Equity performance
Of the 92 broad indexes ranked by Bloomberg, only 5 have positive double-digit returns in USD terms YTD. This list includes the NGX ASI and Brazilian Ibovespa, both countries
with murky foreign exchange market arrangements and fiscal challenges. In the US, the Tech sector leads the laggards and Energy is up over 40%.

Global Indices YTD Performance 2022 (%) S&P Sectoral Performance YTD 2022 (%)

44.16%
Local Currency Return (%)
USD Return (%)
4.68%
19.73%

-24.31%
-11.15%

-17.45%

-10.74%

-17.28%

-18.39%

-14.75%
-3.00%

-8.16%

-10.74%

-11.22%

-24.31%
-12.26%

-14.75%
-5.81% -7.38%
-9.41%
-11.57%
-16.13% -16.87%
IBOVESPA FTSE NIKKEI DJIA CAC 40 DAX S&P 500 NASDAQ -23.75%
Energy Aviation Health Care Tourism Industrial Finance Real Estate Tech

• The U.S stock markets declined due to economic uncertainties. The major factors include inflation, rising interest rates and energy crisis made worse by the Russian-Ukraine war.

• Despite the economic turbulence, the energy sector has been performing strongly as it has a year-on-year performance of 44.16%.

• Equity indices from BRICS to Europe are also sharply down.

6
Source: Bloomberg..
 The Recent Market Volatility
Global Markets: Commodities
Commodities have continued to enjoy the current cycle, that has now lasted over 18-months. However, prices are changing differently between product groups. Russia’s war
on Ukraine has exposed the world to food shortages in grains, fertilizer and oils, while lockdowns in China, has crimped the demand for metals. Energy products are in a sweet
spot, as ESG concerns move back-stage and supply adequacy concerns rise.

Beginning of the year till invasion Invasion till China Lockdown China Lockdown till date YTD
120.0%
107.6%
Energy Metals
100.0%

78.3%
80.0%
65.7%

60.0%
47.9%
42.2%
40.0%

25.4%

64.0%

19.3%
18.8%

18.4%
17.3%

16.0%

40.0%
20.0% 13.5%

6.1%
21.0%
11.4%

12.6%

14.2%

1.4%
1.7%

9.0%

3.0%

7.8%
0.0%

-11.4%
-1.5%

-19.7%

-3.2%
-12.7%

-8.2%
-20.0% -2.5%
-9.9%
Soft Commodities

-40.0%
Wheat CPO Oil Nat. Gas Nickel Aluminium Gold Copper
7
Source: Bloomberg . World Bank
 The Recent Market Volatility
Cryptocurrency
As we maintained during our call in July 2020, Bitcoin does not behave like gold during market drawdowns, but is instead highly correlated to equity performance.
These properties have been proven true leading to a drop of over 50% since its highs last year.

Cryptocurrency Metric YTD Year end

80000 2022 2021
BTC notched ATH Ethereum Flows on Coinbase ($ Bn) -0.23 0.92
of $61,315 on . Institutional
70000 March 13 . Tesla interest in BTC
accepts BTC
Bitcoin Flows on Coinbase ($ Bn) 0.46 6.3
propped Bitcoin to
$43,859 in Q3
60000 2021. A 25% Q/Q UST(a stable coin) Coin shares Digital Asset Fund Flows ($ Bn) -0.33 9.3
increase. fell below its
Bitcoin ended intended $1 peg
50000 Q2 2021 at Cryptocurrency Market Capitalization ($ Bn) 1,260 2,368
$35,969, a 44%
decline from
40000 previous ATH.

30000 Bitcoin closed at

$46,218 in 2021.
CBN launched E-
naira in Q4 2021.
20000

10000

0
Dec-21
Nov-21
Jan-21

Apr-21

Jul-21

Jan-22

Apr-22
Feb-21

Mar-21

Sep-21

Feb-22

Mar-22
Aug-21
Jun-21
May-21

May-22
Oct-21

8
Source: Yahoo finance, Bloomberg. Investing.com. Gecko coin, Coinbase, Statists
Outline

The Recent Market Volatility

Why a Slowdown is Likely

Investment Strategy: How to Weather The Storm

 Why a Slowdown is Likely
Reviewing Previous Recessions
Economic slowdowns have been recurring in countries over the years, though their timelines and severity varied considerably. Causes of these episodes of decline in growth
ranged from Wars, monetary policy tightening and of recent, a pandemic

US Real GDP Growth (y/y) & Major Triggers

25%
The Great Post WWII Korean Iran –Iraq Fin.
Oil Gulf War COVID-19
Depression War war Crisis
embargo
20%

15%
Monetary
tightening
10%

5%

0%

-5%

-10%

-15%
1935

1948

1960

1972

1984

1996

2008

2020
1929
1931
1933

1937
1939
1941
1943
1945

1950
1952
1954
1956
1958

1962
1964
1966
1968
1970

1974
1976
1978
1980
1982

1986
1988
1990
1992
1994

1998
2000
2002
2004
2006

2010
2012
2014
2016
2018
Source: Bloomberg & IMF 10
 Why a Slowdown is Likely
The State of the US Consumer – Expectations at a Decade Low
The consumer has been the backbone of the US economy for decades. One of the reasons the great depression was severe was the quantum of household wealth invested in
the stock market. The market crash wiped out millions of household wealth and decimated consumer confidence in the economy, leading to one of America’s greatest
economic slump. Today, the consumption accounts for 68% of the US economy and consumers’ “gut feeling” about the economy is close to historic recession levels.

Consumer strength indicators

130 University of Michigan Consumer
Expectations Index »
University of Michigan Consumer
110 Sentiment Index »

1 90
Consumer confidence is less than 5 points from the
trough of the Global financial crisis and 10 points from
the bottom reached during the recession of the 1980s 70

50

Global Financial
30 crisis lowest
1980s recessions Lowest level in a
point: 49.2 decade: Lower

10

31-Mar-93

31-Mar-03
31-Mar-78

31-Mar-83

31-Mar-88

31-Mar-98

31-Mar-08

31-Mar-13

31-Mar-18
30-Sep-80

30-Sep-85

30-Sep-90

30-Sep-95

30-Sep-00

30-Sep-05

30-Sep-10

30-Sep-15

30-Sep-20
31-Dec-81

31-Dec-86

31-Dec-91

31-Dec-96

31-Dec-01

31-Dec-06

31-Dec-11

31-Dec-16

31-Dec-21
30-Jun-79

30-Jun-84

30-Jun-89

30-Jun-94

30-Jun-99

30-Jun-04

30-Jun-09

30-Jun-14

30-Jun-19
Source: Bloomberg & IMF 11
 Why a Slowdown is Likely
The State of the US Consumer – Retailers Pressured by Costs and Lower Patronage
Consumer are particularly worried about run-away inflation and the rate of wage growth. They expect inflation to run at 5.4% over the next 12 months while the average wage
growth is currently running at 4.4%, driving their pessimism about the economy. Buying conditions for durable goods are at their weakest on record. Major Retailers, reported
numbers impacted by rising costs and consumers making the hard choices of cutting discretionary spending for staples, while home improvement remained strong.

Durable goods buying conditions

180 1

160 Consumer purchases of durable goods have declined

sharply to 71 points this year.

140

120 1
Price pressure from chip shortages, rising labour wages
and fuel costs coupled with expectations for inflation to
100 remain above Fed target of 2%, has depressed consumers
buying conditions for durables
80
1

60 Used cars prices surged 41% y/y in February according to

Lowest level the labour department, as consumers suffer prices
increases broadly.
40
1993
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991

1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
2019
2021 12
Source: Bloomberg & IMF
 Why a Slowdown is Likely
The State of the US Consumer - Housing Market Losing Steam
68% of global net worth worldwide is held in real estate (Mckinsey). The US is no different with a greater share of households owing real estate than a retirement account. But
even the red hot US housing market has begun to show signs of slowdown. Housing inventories have begun to climb in sync with the rise in mortgage rates, barely three
months from their all time lows in January. Single family home sales have fallen 12.4% this year from January.

Housing Inventory (thousands) 30 year fixed mortgage rate (%)

1
1,400 6.0
Single family home sales have fallen 12.4% this year from January.
Average home prices rose by 34% in the last two years supported 1,200 5.5
by low inventory and materials scarcity.
1,000 5.0

2 4.5
800
Inventory numbers have climbed for the last two months and
Moody expects housing prices to fall by at less 10% in at least 10 4.0
regional cities in the US. 600
3.5
400
3 3.0
The combination of higher prices and rising mortgage rates 200
together chip away at demand of houses and ultimately home 2.5
valuations. 30 year fixed mortgages have risen by more than
- 2.0
200bps in less than three months.

Nov-21
Dec-21
Apr-21
May-21

Apr-22
Jun-21

Oct-21
Aug-21

Jan-22

Mar-22
Jul-21

Sep-21

Feb-22

May-22
May-21

Sep-21
Sep-21

Jan-22
Feb-22

Apr-22
Oct-21

Dec-21
Aug-21

Jan-22

Mar-22
Mar-22
Jun-21
Jul-21
Jul-21

Nov-21
Nov-21
13
 Why a Slowdown is Likely
Spread between 10yr and 2yr yield (I)
Historically, the inversion of the yield curve (10yr – 2yr) has been an efficient predictor of a recession. The measure has worked 74% of the time in signally turning
points in the economy. Recessions usually follow 4-18 months after the yield curve inverts.

Interest rate spread (10yr - 2yr), 1962 - 2022

5
Yield curve inversion
occurred 20 months
4 before the onset of
Yield curve
recession Yield curve
inversion occurred
18 months before inversion occurred
3 Yield curve inversion
recession 12 months before
occurred 4 months
recession
before the onset of
2 recession

-1

-2
May-79
May-66

May-91

May-04

May-17
Jun-67

Oct-71

Jun-80

Oct-84

Jun-92

Oct-96

Jun-05

Oct-09

Jun-18
Jan-62

Nov-72

Jan-75

Nov-85

Jan-88

Jul-93

Nov-97

Jan-00

Aug-07

Nov-10

Jan-13

Jul-19
Mar-64
Apr-65

Jul-68
Aug-69

Dec-73

Mar-77
Apr-78

Jul-81
Aug-82

Dec-86

Apr-90

Aug-94

Dec-98

Mar-02
Apr-03

Jul-06

Dec-11

Mar-15
Apr-16

Aug-20
Feb-63

Sep-70

Feb-76

Sep-83

Feb-89

Sep-95

Feb-01

Sep-08

Feb-14

Sep-21
Source: Bloomberg & IMF 14
 Why a Slowdown is Likely
Spread between 10yr and 2yr yield (II)
The spread between the 10yr and 2yr inverted briefly in March and April. Though short-lived, its occurrence is a flash warning of a recession ahead

Interest rate spread (10yr - 2 yr), 2022

100

80

60

40

20

-20

01-Apr-22

08-Apr-22

15-Apr-22

22-Apr-22

29-Apr-22
31-Dec-21

04-Mar-22

11-Mar-22

18-Mar-22

25-Mar-22

06-May-22

13-May-22

20-May-22
14-Jan-22

04-Feb-22

11-Feb-22

18-Feb-22

25-Feb-22
07-Jan-22

21-Jan-22

28-Jan-22

Source: Bloomberg & IMF 15

 Why a Slowdown is Likely
Supply side in late expansion – PMI slowing down
Both Manufacturing and services PMI have signalled business expansion over the last 23 months. However, the V-shaped recovery from the covid induced slumped is showing
signs of weaker momentum. Expansions across all but one of the components of the Manufacturing index are slowing.

1 Manufacturing PMI

Overall economy achieving a 23rd consecutive month of growth. April 2022 Index Direction Rate of Change Trend (months)
The rate of growth was however slower than in March 2022 and Manufacturing PMI® 55.4 Growing Slower 23
the slowdown in PMI has now extended over 5 months.
New Orders 53.5 Growing Slower 23
Production 53.6 Growing Slower 23
2 Employment 50.9 Growing Slower 8
10/11 components of the Manufacturing index showed growth. Supplier Deliveries 67.2 Slowing Faster 74
9/11 components of the Services index showed growth. 3/11 of
Inventories 51.6 Growing Slower 9
the services index grew but lost 5points or more.
Customers’
37.1 Too Low Slower 67
Inventories
Prices 84.6 Increasing Slower 23
3
One area with a worrying emerging pattern is in Employment. Backlog of Orders 56 Growing Slower 22
While employment in Manufacturing grew for an 8th consecutive New Export Orders 52.7 Growing Slower 22
month in April, it contracted in Services for the first time this year
by 5pp. Imports 51.4 Growing Slower 6

16
 Why a Slowdown is Likely
US conference board Leading Indicator Index - A second opinion
The US conference board Leading indicators has a history of accurately predicting turning points in the US with a lead time of 3-6 months. Constituents of the index includes
Building permits for new private housing units, Leading credit index and average consumer expectations for business conditions. The index suggests a slow down is underway,
and history suggests a recession may be 12 – 18 months away.

US Conference board leading indicator index

20

15

10

-5

-10

-15

-20
Oct-82

Jun-86

Oct-93

Aug-95

Jun-97

Oct-04

Jun-08

Oct-15

Jun-19
Jan-80

Nov-81

Aug-84
Jul-85

Mar-89

Jan-91

Nov-92

Sep-94

Jul-96

Mar-00

Jan-02

Nov-03

Aug-06
Jul-07

Mar-11

Jan-13

Nov-14

Aug-17
Jul-18

Mar-22
Sep-83

May-87

Feb-90

May-98

Feb-01

Sep-05

May-09

Feb-12

Sep-16

May-20
Dec-80

Apr-88

Dec-91

Apr-99

Dec-02

Apr-10

Dec-13

Apr-21
17
 Why a Slowdown is Likely
A lesson from the great inflation (1965 – 1982)
The Great inflation in the late 1960s-1982 bears similarities to the current economic events in the US. While inflation is rising today on the combination of fiscal and monetary
largesse (to cushion the effects of the pandemic) and rising energy costs, inflation rose in the 1970s-1980s on loose monetary policy and oil price shocks between 1973 - 1979.
The resulting tightening cycle led to recessions in 1980 and again in 1982, but the precursor in the 1970s was stagflation, the risks of which is elevated today.

GFC brought large QE commenced Tapering & rate Covid reverses Fed Dry powder, supply Fed targets inflation Stagflation and
bailout packages with FFR at zero, hikes weaned action & reinstates chain distributions without weaning the recession likely
Today and rate cutting nursing the the economy QE. Recovery, hot & Russia Ukraine economy of QE before inflation is
cycles economy back to of excessive labour & housing conflict stoke liquidity leading to tamed sufficiently.
growth stimulus market ensues inflation to 8.5% slowdown fears. A

Historic triggers Triggers Fed Action Results

US stops Spending to reduce Unemployment Two oil shocks Fed keeps interest Inflation subdued Growth slows
conversion of USD unemployment becomes between 1973- benign to from 14% to 3.5% with two
1965 - to gold as int’l became central irresponsive to 1979 each at least unsuccessfully recession in 2
1982 with rate hikes
trade rose sharply expanding money spending despite tripling energy counteract the pushing the Fed years as inflation
after WWII supply rising inflation. prices exacerbate headwinds from funds rate to 20% aims achieved
Stagflation inflation cost-push inflation

Source: Bloomberg & IMF 18

 Why a Slowdown is Likely
Market Consensus
Large banks lend their voice to a possible turning point in the economy based on leading indicators. On the balance of risk both consumer and business
sentiment is heading for a decline and interest rate and inflation risks are high. They however differ on the timeline to the recession, with the earliest calls for
later this year.

Morgan Stanley JP Morgan Goldman Sachs UBS BOA Consensus

Business
Decline Resilient Decline Resilient Decline Decline
Confidence

Consumer
Decline Resilient Decline Resilient Decline Decline
Confidence

Interest rate risk unchanged Moderate High Moderate High High

Inflation High High High High High High

Risk / Likelihood
High Medium Very High Medium Very High High
of a recession

Not likely in the Not likely in the

Timeline to
2023 near term No call made near term 2022 No consensus
recession
19
 Why a Slowdown is Likely
How long will the recession last?
Since the Great Depression, recessions have lasted between 6 and 16 months. While the federal reserve has shown it willingness pivot quickly from price stability goals to full
employment, exogenous shocks like the War in Ukraine and lingering supply chain bottlenecks may influence the ability of the Fed to achieve a very short recess for the
economy.

Length of previous recessions

1
The world is entering a new credit cycle phase that peaked in the Recession Duration (months) Maximum S&P draw down Days to bottom
first 18 months of the covid pandemic. Focus is now firmly on
Great Depression 44 -86.19% 678
taming inflation or safety, with more than $3trillion of sub-zero
debt wiped out 1953/1954 Recession 10 -8.57% 29
1957/1958 Recession 8 -20.66% 70
2 The Oil Embargo
16 -44.11% 246
recession
Borrowers face huge refinancing risks, especially sovereign in The 1980 Energy
Africa and Latin America. Multiple defaults are possible (eg Sri 6 -17.07% 30
recession
Lanka) with the effects a slowdown in frontier markets growth The 1981/1982 Iran
16 -23.48% 254
Energy recession
The 1991 Gulf war
8 -19.94% 62
3 recession

Weakness in the US, Europe, China and Non energy producing The Great Recession 18 -48.17% 206
Frontier markets could be mutually reinforcing within the 6 -16 The COVID-19 Recession 6 -33.92% 23
months period previous recessions lasted for. Average duration 15 -33.57% 178
Average duration ex GD 11 -26.99% 115

20
 Why a slowdown is likely
How long will the recession last? (II)
In summary we believe the US will enter into a recession in 2023 and if it aligns with precedent, last beyond 4 quarters. Upsides may emerge from swift resolutions to supply
chain problems and dismantling of protectionist trade barriers since 2020. But the balance of risk is to the downside. We also expect slowdowns in the fragile economies of
Europe but see softer macro policies in China helping to avert a global recession.

1
While the US is still enjoying a late expansion/slowdown phase of
internal growth, the last q/q growth print in the US already
indicates negative impacts from a deficit in its net export position.

2
As local conditions catch up with weakness in net exports, the
economic slump could last for up to 15 months, the average
length of 9 previous recessions.

3
Weak consumer sentiment over the next 12 month and a
combination of supply chain factors, exacerbated by spiralling
geopolitical risks, should keep the supply side from rebounding
sharply.

4
With both consumer and industry hobbled, the S&P could have
another 10-15% downside before recovery. Our benign outlook is
based on the length of the previous rally, elevated inflation global
factors outside the control of the US

21
Outline

The Recent Market Volatility

Why a Slowdown is Likely

Investment Strategy: How to Weather The Storm

Investment Strategy: How to Weather The Storm
A Review of Our Themes for 2022
100%

The End of Easy

Money

100% The Bubble

Back to Work 80%
Deflates

2022 Global Market

Themes

Regulation
US Vs China
Of Tech

60% 60%
Geopolitical
Tension

100% 23
Investment Strategy: How to Weather The Storm
A Review of Our Themes for 2022
60%

The Dangote
Effect

100%
Real Asset 80%
Electioneering
Rally

2022 Local Market

Themes

FX Challenges Tight Liquidity 80%

100%

Tech Rising

80% 24
 Investment Strategy: How to Weather The Storm
Global – Our Year End 2022 Forecast

2022 Forecasts
Best Base Worst 2022 Actual
Global GDP growth 6.0% 4.40% 2.50% 5.2%*
U.S. GDP growth (y/y) 4.80% 3.50% 2.00% 3.6%
Euro Area GDP Growth 4.20% 3.30% 2.50% 2.6%
Emerging market Economic Growth 8.00% 6.30% 4.00% 6.8%*
US Unemployment 3.7% 4% 4.2% 3.6%
Bitcoin $45,000 $30,000 $15,000 $30,442
Consumer Sentiment (U.S.) 94 80 55 59.1
US Equities (S&P 500) Old forecast 15% -5% -10%
-14.21%
US Equities (S&P 500) New forecast -10% -25% -35%
US Fixed Income Yields (10yr) 0.5% 2.25% 2.5% 2.97%
Trade Weighted Dollar Major (YTD Growth) 3.00% 1.00% -3.00% 4.66%
CBOE VIX Index Old forecast 15 20 43
26.66
CBOE VIX Index New forecast 22 35 45

1. 2022 Actual performance calculated as of May 17, 2022

2. “New forecast” represent changes to our February 2022 Outlook forecasts
3. ‘*’ - most recent publication
25
 Investment Strategy: How to Weather The Storm
Local - Our Year End 2022 Forecast

FY 2022 Outlook and Estimates

Best Base Worst 2022

Growth GDP (Average) 4.00% 2.00% 1.00% 3.11%

Risks biased to an upwards movement in the yield curve across tenors

ASI YTD performance 10.00% -5.00% -20.00% 23.50%

Fixed Income yields (10y) 11.20% 12.75% 14.00% 11.63%

Brent Crude ($/barrel) 105 85 70 113.43

Currency ($/N) parallel market 480 590 650 600

Average Inflation 13.00% 16.00% 17.50% 16.01%

Foreign Reserves (US$'bn) $42 $39 $45. $38.91

Monetary Policy Rate 11.5% 11% 10.50% 11.50%

1. 2022 Actual performance calculated as of May 17, 2022

2. “New forecast” represent changes to our February 2022 Outlook forecasts
3. ‘*’ - most recent publication
26
Investment Strategy: How to Weather The Storm
A Review of Our Recommendations
2020 (Post COVID Strategy)
Diversify
Stay Liquid
Leg Into Cheap Assets
• We highlighted the importance of a
diversified portfolio in order to
weather a financial storm.
• We suggested clients use the
market volatility as a time to
achieve the necessary
diversification
• We specifically highlighted the
importance of global diversification
• We also initiated an allocation of
0.5% of assets to Bitcoin at $9,000
per coin as well as Gold at 2.5% of
assets.
2021 (Annual Outlook)
Buy Real Assets
• We recommended an overweight
to real assets like:
• NGN real estate
• Gold
• Soft Commodities
• We expected real assets to
outperform in a period of high
inflation
• We also recommended shorter
duration instruments to reduce risk
and continued to recommend
clients implement a long term
allocation to Gold and Bitcoin
2022 (Annual Outlook)
Stay Liquid, Stay Real
• We recommended a barbell
strategy wherein, we suggested
continued overweights to real
assets due to ongoing inflation.
• We also continued to recommend
that our clients prioritize liquidity
and underweight financial assets.
• We specifically predicted in our
theme “The Bubble Deflates” that
markets would likely drop this year.
• We also specifically predicted the
beginning of a Crypto Winter and
underweighted the asset class.
 Investment Strategy: How to Weather The Storm
Stay Liquid, Stay Real
In 2020, post pandemic, we emphasized Liquidity with a wait and see approach. In 2021, we called for investment in real assets and an avoidance of financial
market assets. This year, we combine the two views into a dual approach that would see us dialing down portfolio risk via greater liquidity without negatively
affecting returns via our allocation to real assets.

• Increased volatility and uncertainty

2022 • Potential of an equity market

correction
• Possibility of increased interest rates

• Hold short dated fixed income that

Stay Liquid provide access at short notice like

placements
• Hold short dated, liquid bonds

• Continue to allocate to Nigerian real

estate especially in areas with low
vacancy rates like Yaba and Surulere
Stay Real • Allocate to soft commodities
• Allocate to venture capital as the
current wave of funding should last for
a few more years

28
Investment Strategy: How to Weather the Storm
Global Equities
1 January Call 2 Developments
• We have been wary
about the
sustainability of S&P
500 returns over the
last decade. Valuations
have been fuelled by
ultra low monetary
policy and more
recently by stimulus
injections. The
correction we
expected has now
arrived.
• Our call in January was
to Underweight US
Equities
Current Model Portfolio allocation Advice
3 Current Position
US Equity 9.5% Underweight
• Data from 9 previous • We maintain our call to
US recession shows be Underweight global Our range of forecasts for the S&P 500 is between
that the S&P 500 equities given 3,117 – 4,316, indicative of a 10% to 35% fall on the
declines by 34% on prevailing headwinds. Index
average during
economic slow downs
from their last peak.
• We layer-on this view
to the current bearish
run on the S&P 500,
expecting further
downsides.
29
Investment Strategy: How to Weather the Storm
Local Equities
1 January Call 2 Developments
• In our 2022 outlook,
we maintained that
Nigerian Equities tend
to under perform in
election cycles. Both
local and foreign
investors planned for
uncertainty in lection
results by exiting or
staying on the side-
lines regardless of
valuations.
• Our call in January was
to Underweight
Nigerian Equities
Current Model Portfolio allocation Advice
3 Current Position
NG Equity 8.0% Underweight
• The correlation • We maintain our call to
between Nigerian be Underweight NG Equities
equities and global Nigerian equities
equities has reduced relative to our model Tier 1 banks are notably missing from the rally this year. A late
significantly due to low portfolio levels, with rally in banks could support existing allocations to equities, but
FPI interest (16% in risks running from valuations are being stretched in Consumers, Agriculture and
March) and low interest rates increases Industrials
interest rates. to inflation damping
consumer wallets and
• While Nigerian Equities demand.
have become world
beaters this year,
concerns about
overstretched
valuation in
Consumers, Industrials
and Agriculture are
brewing.
30
Investment Strategy: How to Weather the Storm
Fixed Income

Current Model Portfolio allocation Advice

1 January Call 2 Developments 3 Current Position
NGN FI 22.0% Overweight

USD FI 15.0% Overweight

• Fixed income makes
the bulk of “sleep well
money” in our model
portfolio, providing
steady income and
capital preservation for
clients.
• Our call in January was
to Overweight Fixed
Income
• Local fixed income • We maintain our call to Average Eurobond yields by country
rates have reset from a be Overweight Fixed
downward sloping Income particularly
trend to gentle upward short duration
13.4
movements. We instruments both USD
expect this to be trend and NGN.
for the rest of the year. 10.9
Our estimates for one- • Clients are particularly
year risk free rate is 8- guided to pivot
10% by December. towards our 8.4 8.2
7.6
8
guaranteed fixed
6.8 6.8
• The CBN’s MPC also income products to
raised the benchmark rise out the increased
interest rate in May by volatility in fixed
150ps, signally further income markets
hikes in market yields
should be expected

Nigeria Ghana Egypt Angola

31-Dec-21 31-Mar-22 23-Mar-22

31
Investment Strategy: How to Weather the Storm
Global Real Estate

Current Model Portfolio allocation Advice

1 January Call 2 Developments 3 Current Position
US RE 15.0% Neutral

• Global Real Estate have
enjoyed improved
valuations in the last
two years. Average
single family homes
have risen by 34% in
the US and housing
starts have been
robust in the US and
UK.
• Our call in January was
to be Neutral Global
Real Estate
• Housing inventories • We maintain our call to Home prices were supported by cheap mortgages
are however beginning be Neutral global Real
400 Median Single home prices ($'k), LHS 9
to rise in early signs Estate as the bulk of
that developed market our clients implement
350 8
RE are cooling off. via long term holdings
in direct real estate. 7
300
• Housing demand has
shown strong pro- • Reserve liquidity for 6
cyclical patterns, opportunities to invest 250
particularly during at cheaper valuations 5
recession. Only once in 200
6 previous recessions 4
did housing prices rise. 150
The sharp rise in fixed 3
rate mortgages is also 100
2
a leading indicator to
lower momentum for 50 1
housing demand
0 0

Mar-99

Mar-02

Mar-05

Mar-08

Mar-11

Mar-14

Mar-17

Mar-20
Sep-00

Sep-03

Sep-06

Sep-09

Sep-12

Sep-15

Sep-18

Sep-21
32
Investment Strategy: How to Weather the Storm
Nigerian Real Estate

Maximum Model Portfolio allocation Advice

1 January Call 2 Developments 3 Current Position
NG RE 15% Overweight

• Real Estate is a key • Real Estate prices have • We maintain our call to
component of our kept pace with be Overweight Lagos average Land Prices (N) per square meter
“Buy Real Asset” inflation over the last 3 Nigerian Real Estate 33% 21% 22% 63% 61% 48% 29% 51%
strategy years. Land prices were
up on average 35% in • Continue to allocate to 550
Lagos in 2021 and have Nigerian Real Estate
remain well bided this especially in areas with
year. 415
low vacancy rates like 398
• Our call in January was 360
to be Overweight Yaba and Surulere 330 322
296
Nigerian Real Estate
• Returns are robust
198
enough to compensate 170
144
for inflation and 105 97
currency downsides
39 50 28 42

Old VI Ikeja Lekki Agungi Magodo Abraham Sangotedo

Ikoyi GRA Phase 1 Adesanya
2020 Average (N)/sqm 2021 Average(N)/sqm 2022 Average(N)/sqm

33
Investment Strategy: How to Weather the Storm
FX
1 January Call 2 Developments
• We believe the Naira is
fundamentally
undervalued at
N615/USD1 and risk
adjusted USD returns
are not sufficiently
high or protected to be
overweight USD above
our model portfolio
allocation.
• In Our last call we
expected the Naira to
further depreciate and
discouraged
dollarization on FOMO.
3 Current Position
• The current NGN/USD
exchange rate is partly
fuelled by increased
speculation and
demand common in
election cycles. These
demand vanish post
elections as evidenced
in current account
recoveries 6-8 months
post elections relieving
pressures on the
exchange rate.
Maximum Model Portfolio allocation Advice
NGN 50.5% Neutral
USD 49.5% Neutral
• The evolution of our Value
call on currency
allocation between Current Account $3.7bn (surplus)
NGN and USD can be
Oil/CA correlation 64%
traced to 2020, when
we advised clients to Maximum CA deficit (Qtr) $6.4bn
diversify their currency
exposure and in 2021 Reserves/Max CA deficit 6.1x
when we advise a “leg
in” strategy. Reserves $38.8bn
Months of import cover 8 months
• Those strategies
culminate in our Inflation differentials (NG – US) 8.5% (lowest since 2015)
current advise to be
Neutral with a keen REER value of Naira 490 - 520
eye on the over
bloated exchange rate Estimated under valuation of Naira 15% (parallel rate)
34
Investment Strategy: How to Weather the Storm
Cryptocurrencies
1 January Call 2 Developments
• Our allocation to
cryptocurrencies is a
play on the blockchain
technology and a long-
term strategy rather
than a speculative one.
• Our call in January was
to be Underweight
Cryptocurrencies as
valuations exceeded
our measures of value.
3 Current Position
• The collapse of UST is
a reminder of
valuation risks in
cryptocurrencies, the
ill conceived notions
of BTC as digital Gold &
low corelations
between cryptos and
financial markets
Maximum Model Portfolio allocation Advice
Cryptocurrency 0.5% Underweight
• We maintain our call to UST was propped through a swap mechanism with Luna.
be Underweight The recent downturn occurred as a result of enormous
Cryptocurrencies selling pressure on UST that pushed the price down to 91
cents. Investors rushed to buy UST to swap for $1 LUNA and
• Consider re-entry at then sold their holdings of LUNA; this caused LUNA’s value
prices below $15k. to fall.
With UST de-pegged and an increasing amount of LUNA
dumped on the open market, fear that there wouldn’t be
enough funds in the Terra project to properly back the value
of UST magnified, eventually crippling the stablecoin
35
Investment Strategy: How to Weather the Storm
Gold

Maximum Model Portfolio allocation Advice

1 January Call 2 Developments 3 Current Position
Gold 2.5% Overweight

• The diversification • This year gold has • We maintain our call to Gold & equity performance in recessions and >15% fall in equities
benefits and downside outperformed both be Overweight Gold Recession year Gold S&P 500
protection properties global fixed income
of gold is even more and equity Indexes 2002 -5% -23%
desirable in a recession irrespective of their 2008 22% -18%
and high inflationary degree of
environment. diversification across 2020 -4% -34%
sectors. We expect this
• Our call in January was to continue until
to be Overweight Gold recovery is well
underway.

36
Investment Strategy: How to Weather the Storm
PE/VC
1 January Call 2 Developments
• VC funds dropped from
585 to 396 after the
Dot-Com bubble in
2000, and dropped
from 443 to 388 after
the Great Recession in
2008. Our call is for a
moderation in exit
multiples and funding
rounds
• Our call in January was
to be Overweight
PE/VC
3 Current Position
• Buyout and exist
multiples were up due
to more capital chasing
similar assets, and
higher multiples have
put pressure on the
industry to keep
generating high
returns. The threat of a
recession may shift
focus towards
consolidating EBITDA
growth.
• Funding will continue
with greater emphasis
on due diligence
Maximum Model Portfolio allocation Advice
NG PE/VC 3.5% Overweight
• We maintain our call to
be Overweight Gold
• Avoid FOMO in
allocating among Well funded & market fit
propositions
PE/VC investments.
• Carefully select private
companies with
Market fit but crowded space
winning propositions at risk of market share
in tech and growth
sectors can compound
seed investments.
Disruptive but nascent technologies with
high cash burn rate
37
Investment Strategy: How to Weather The Storm
Summary of recommended actions In a recession

Global Nigerian
Fixed Income Real Estate PE/VC Commodities Gold Crypto
Equities Equities

Overweight Overweight
Overweight VC Overweight Underweight
Overweight Underweight Underweight Local Soft
Gold Crypto
Neutral Global Commodities

The inflation Correlation to

Placements Beware the
Valuations are protection will As volatility Equities and
and short Equities tend FOMO: Invest Food and softs
stretched and continue to increases, gold the beginning
duration to do badly in in companies will remain
volatility will make this should of a Crypto
bonds in both election cycles that solve real strong in 2022
increase asset class strengthen winter may
NGN and USD problems
attractive drop prices

38
Investment Strategy: How to Weather The Storm
Model Portfolio Positioning

Asset Class Conservative Moderate Aggressive

Fixed income 57.00% 47.00% 37.25% Overweight
Developed FI 18.00% 15.00% 12.00% Overweight
Emerging FI 12.00% 10.00% 5.00%
Frontier FI
Nigeria FI 27.00% 22.00% 20.25% Overweight
Listed Equities 15.00% 17.50% 21.00% Underweight
Developed EQT 10.00% 9.50% 8.00% Underweight
Emerging EQT
Frontier EQT
Nigeria EQT 5.00% 8.00% 13.00% Underweight
Real Estate 22.00% 27.00% 31.00% Overweight
Developed RE 10.00% 12.00% 12.50% Neutral
Emerging RE
Frontier RE
Nigeria RE 12.00% 15.00% 18.50% Overweight
Private Equity 1.00% 3.50% 5.75% Overweight
Cryptocurrencies 0.00% 0.50% 0.75% Underweight
Developed PE
Emerging PE
Frontier PE
Nigeria PE 1.00% 3.00% 5.00% Overweight
Commodities 5.00% 5.00% 5.00% Overweight
Gold 3.00% 2.50% 2.00% Neutral
Developed CM
Emerging CM
Frontier CM
Nigeria CM 2.00% 2.50% 3.00% Overweight
Thank you
for
Joining

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