The Parthian Group, a global fixed-income firm, has advised investors to stay short and liquid, take advantage of higher yields and invest in dollar assets – Eurobonds as well as dollar placements bearing in mind that the rules about diversification still stand.
Oluwaseun Dosunmu, the head of investment research, at Parthian Securities and Ronke Akinyemi, head, of global markets at Parthian Partners, gave the advice at the February 2023 forum of the Finance Correspondents Association of Nigeria (FICAN) in Lagos.
In his presentation, Dosunmu said those with an interest in the equities market should focus on the top 20 fundamentally strong stocks in terms of market capitalization in the Nigerian Exchange; stocks that are liquid and those that pay good dividends.
He said the dominance of domestic investors in the Nigerian equities market is a good development because it shields the market from the impacts of funds outflow from emerging markets and global headwinds.
On what to expect from the market that will guide investment decisions Akinyemi said there will be Public-private partnerships to reduce pressure on budget funding, just as there will be debt issuances on the back of these partnerships and opportunities to invest in these issues.
“Uptick in interest rates is however anticipated in the second quarter, resulting from a reduced level of liquidity and huge budget deficit.
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“We expect the market to commence this year with some depression in yield, owing to expected liquidity elevation in the first quarter,” she stated.
Generally, the investment expert noted that the market is expected to be choppy and largely driven by political transitioning, oil price fluctuations, trade wars, possibility of interest rate hikes by other economies and risk off/on sentiments.
According to her, the Monetary Policy Rate (MPR) is likely to increase and credit conditions may remain tight in Q1-23 Further, the experts agreed that there will be increased financial speculation and weakened investors’ confidence.
Earlier, Akinyemi had recalled that after the second quarter (Q2) of 2022 selloffs triggered by higher interest rates in the fixed income market, the Nigerian stock market was volatile with many stocks trading at substantial discounts and delivering greater dividend yields than fixed income space.
As such, the stock market created a massive opportunity for bargain hunting from mid Q2 to Q4 2022, pushing the 2022 year-to- (YTD) return to 19.98percent.
On a positive note, she said there was an improved growth level as the economy began to recover from the impact of the pandemic.
Nigeria became one of the first sovereigns to access funds from the International Capital Market since the start of the Russian-Ukraine war, when it raised about $1.25billion on a 7-year paper at a yield of 8.375 percent.
Since issuance in March 2022, the yields on the Nigeria 7-year Eurobond issue have increased by 2.5percent points to 10.9percent as of 30th June 2022, from the 8.4 percent recorded on 18th March 2022.
She said Non-performing loans are likely to increase among lenders as high borrowing costs might raise default risks. PSB license might erode banks’ Non-Interest Revenue ” Regulatory blocks remain a risk for the industry, even as the sector will benefit from improved economic activities “High borrowing cost to weigh on business profits,” she explained.
