In a cautious approach, investors have been advised to focus on sectors that drive the economy in the second half (H2) of the year, 20 23.
Steve Osho, Co-Managing Partner, Comercio Partners, gave this advice in a report on the review of the economy in the first half (H1) 2023 and outlook for H2 ’23.
“As we await more fiscal, monetary and structural reforms from the new administration, investors should focus on the following: Structure portfolios around secular drivers of the economy, technology, renewable energy, power sector, gas, goods and services sectors are few of those important drivers to look out for.
He said a few allocations to dollar-denominated assets like Eurobonds, ETFs, inflation-hedged assets, real estate and commodities will be good as well.
According to him, the local yield curve especially on FGN bonds has been interesting and it will be a good investment haven for investors, as well as UST (US treasury bills), going by the recent economic outlook and the drive by FED as indicated by the FED Chairman in their aggressive quest to tame inflation through hawkish monetary stance and possible two more hike before the end of the year.
Citing notable developments in the H1 ’23 including the naira redesign policy, the general election and reforms announced by the new government, Osho observed that the first half of this year has been an exhilarating ride, featuring a blend of bullish and bearish sentiments in the fixed income markets.
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“The Nigerian stock market, displaying its resilience, weathered macro-economic challenges and election anxieties, soaring to its highest index point in 16 years at 66,381.20, making the NGX the best performing in Sub-Saharan Africa.
In the same vein, he noted that the beginning of the exchange rate reform which saw the acting CBN governor announcing the commencement of a much more flexible exchange rate policy and unification of the currency has seen better harmonization between the I&E official window and the parallel market trading within a very close gap of circa N760-N770/$1.
Projecting on the direction of the economy in H2 ’23, Osho said the trajectory of the economy in H2 ’23 will greatly hinge on the ministerial appointment by President Bola Ahmed Tinubu, as well as forthcoming monetary and fiscal policies.
He noted that the sustainability of the fuel subsidy removal and the liberalization of the foreign exchange market will play pivotal roles in the second half of the year. Alongside this, the revision of the minimum wage from N30,000 to N200,000 to enable Nigerians bear the brunt of the economic reforms emerges as a topic of interest.
Osho, however, expressed optimism about the continued positive performance of the financial markets in H2’23, with increased participation from foreign portfolio investors.
“For the fixed-income markets, we expect bullish sentiments in the near term, due to the buoyant system liquidity. However, as the year progresses, cautionary sentiments may arise, as investors keenly observe foreign portfolio investors’ participation, with yields expected to trend upwards to attract Foreign Portfolio Investments (FPIs).
“For the local stock market, we envision a continued upward trajectory in the benchmark All-Share-Index, driven by investor anticipation of impressive financial performance from banks following the unification of foreign exchange rates.”
In his advice to investors, Osho said: “It is imperative for investors to adopt a cautious sentiment and to take positions in only fundamentally strong stocks due to the weak macro-economic environment.
“Market participants should prioritize the development of sound investment strategies, conduct thorough research, and diversify their portfolios. By remaining educated about market trends and seeking professional guidance, investors can adeptly navigate potential risks and seize promising opportunities,” he said.
