Anxiety over investment options

OKEY ONYENWEAKU|     As the economy continues to spin out of control there is little to give investors confidence in its quick rebound and recovery, which is fueling pressure on the naira and sell offs in the stock market. Just this last week, the naira dropped to a record low at N305 to the dollar while the Nigeria Stock Exchange lost N1.2 trillion since trading resumed after the New year.

Most investors are in a dilemma over where to put their money while waiting the market correction; in the end many just decide to take their money out of the country as they do not see any immediate light in the tunnel. The prevailing uncertainty in government policy has created confusion among investors who are unwilling to make any stake in the economy.

The economic conditions have hardly improved from the sad realities of shrinking revenues. The price of crude, the main revenue earner of the country, has been struggling after dropping by over 70 per cent and currently trading at $ 30 per barrel; the tight regulatory environment has ceased to encourage entrepreneurship, while poor infrastructure and the weak currency appear to have kept investors at bay.

Interestingly, the Monetary Policy Rate (MPR) at 11 per cent is still one of the highest in the world while high lending rate which hovers between 27 and 30 has discouraged manufacturers.

More worrisome is that International Monetary Fund (IMF) has pointed out the difficulties in trying to implement the N6.08 trillion 2016 budget proposal of the nation.

These have conspired to paint a gloomy picture for the economic prospects of the country this year. The capital market closed last year at -17 negative with no prospects of a rebound in the short-term. Hopes appear to have been lost as a result.

”We aim to ensure macroeconomic stability by achieving a real GDP growth rate of 4.37% and managing inflation. To achieve this, we will ensure the aligning of fiscal, monetary, trade and industrial policies”, said the budget document.

”We have proposed a budget of N6.08 trillion with a revenue projection of N3.86 trillion resulting in a deficit of N2.22 trillion.  The deficit, which is equivalent to 2.16% of Nigeria’s GDP, will take our overall debt profile to 14% of our GDP. This remains well within acceptable fiscal limits. Our deficit will be financed by a combination of domestic borrowing of N984 billion, and foreign borrowing of N900 billion totaling N1.84 trillion. Over the medium term, we expect to increase revenues and reduce overheads, to bring the fiscal deficit down to 1.3% of GDP by 2018, ” the budget document added.

These highlights do not appear palatable to those who are already smarting from their huge losses over the time.

Instead it heightens the fear of investors and throws them into confusion as their hopes are beginning to dampen.

Given this uncertainties even the Chief Executive Officer of the Nigerian Stock Exchange (NSE) noted that, ”uncertainty and volatility dominate forecast for the New Year and beyond as Nigeria struggles with commodity price shocks and the resultant impact on the Naira”.

As a result, Mr. Sewa Wusu of Sterling Capital market Ltd told BusinessHallmark that investing in the equities market now depends on a client’s risk appetite. He expressed fear that it was difficult to determine how low the market could fall given the high volatility, adding that many investors are discouraged.

Dr. Afolabi Olowokere of Financial Derivatives Company (FDC) Ltd reckons that investors should remain where they have invested, given that no significant thing will happen to galvanise the economy in the short-term. He explained that no sector was particularly bad, not even the oil & gas sector which appear to be down now given its major role in providing revenue for the economy.

According to the budget highlights, the government is supporting some critical sectors it wants to boost such as works, power and Housing to which it has voted N433.4billion, Education N369.6billion and Health N221.7billion.

However, given that the Ministry of works, power and Housing is going to attract huge funds companies in that area may attract corresponding investments and probably earn higher returns in the year.

Capital Market:

Building and construction sector

With the prospect of massive construction of roads, and the suspicion that some roads may now be constructed with cement instead of coal tar (bitumen) there is hope that the industrial sector will benefit as huge funds may flow into it.

Of the companies in that sector of the market are Dangote Cement, Lafarge Africa plc, Ashaka Cement among others; they also include Berger paints, Cap Plc, Cement co. of North plc, Portland paints & products Nigeria and Premier paints.

Food sector

Also given attention on school feeding, the food products sector will benefit from expected capital inflow. Experts have also fingered the food products sector as would be a viable area to invest in 2016 given the depressed economy. Human beings will always eat.

That is why even in a depressed economy those essential products continue to attract good attention. However, companies such as Nestle Nigeria appear to have the capacity and ability to continue to weather the storm and keep its investors at heart.

Education sector

The Government is budgeting about N143billion in education. The implication of this is that educational products from printing materials to books, construction of class rooms among other materials in that sector may receive a boost.

Therefore, investing in Learn Africa plc and Academy press plc in the printing & publishing sector of the capital market may be rewarding.

Health Sector:

Some of the companies in the health sector include GlaxoSmithkline Consumer Nigeria plc (GSK Nigeria) which  announced a strong growth in its audited results for the year ended 31 December 2014, even as it approved bonus shares for its shareholders.

Other companies in this sector include; May & Baker Nigeria Plc and Neimeth International Pharmaceuticals.

Oil and Gas sector

The fact that the Oil & Gas sector may be down but it is not out yet. Market observers still believe there is money to be made in that sector even though the price of crude has dropped sharply.

Their view is that oil and gas still contributes the highest percentage of the nation’s revenue currently and in the near future.

President of Stock broking Houses of Nigeria, Mr. Emeka Madubuike said Investment sources abound but the important thing is where do you invest in a weak economy?

He explained that portfolio type of investment in which you spread your resources in a mixture of equities, money market, property among others was the best especially in uncertain times.

Madubuike said that the portfolio must be diversified in different classes of investment options available to the investor.

According to him, advising an investor in a depressed economy depends on so many variables such as what amount the investor has, what percentage of each mix he can accommodate.

In the same vein, Chief Executive Officer, Nigerian Stock Exchange (NSE), Mr. Oscar Onyema who acknowledged that there would be a challenging time not only in the domestic economy but the world over during his briefing on the outlook for the market in 2016 advised investors to consider doing a portfolio investment style with diversification.

”The current state of the market creates both challenges and opportunities for investors. We believe that taking a portfolio approach to investing provides the best risk adjusted alternative for participating in the capital market.  As such, we want to ensure that the NSE provides a repertoire of products that will allow investors to create well diversified portfolios of uncorrelated asset classes,” said Oscar.