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Fund managers contemplate rebalancing portfolios after elections to benefit from expected late equity rally

Investors express market fears as possibility of a global recession looms

Amidst political uncertainty this year as the nation goes to polls in a fortnight to select a government of their choice, investors have been contemplating the idea of rebalancing their portfolio in the first half of the year after a successful election in order to benefit from a stock market rally that analysts forecast will come in the second half of the year.

Bismark Rewane, a Lagos based economist and founder of Financial Derivatives Company predicts an equity market recovery in 2019 in which most of the growth will be recorded in the second half of the year. Rewane anticipates that PFAs will rebalance their portfolio accordingly, holding up to one third of their assets in equities by the second half of the year as they seek to enjoy the stock market recovery after the early general elections this year.

However, investors will still be wary to the market risks that that they could assume by exposing their portfolio to more equities, causing some to doubt that equities will be the best performing assets this year.

Wale Okunriboye, head of research at Sigma Pensions told BusinessDay by phone that “that fixed income may be the best way to go in 2019 considering the volatility in crude oil prices since last year, we expect that the Central Bank of Nigeria (CBN) will find it difficult to keep interest rate low in such an environment in order to ensure that treasury yields remain attractive to investors.”

One-year treasury yields on Friday closed at 16.9 percent, above the 10-year yield which closed at 15.1 percent, causing the yield curve to remain inverted as fears of a recession two continues to gain ground in board room discussions.

“Italy entered a recession yesterday and the European market is struggling to grow and at risk of entering a recession too. Chinese economic growth is slowly down as the trade war has continued to hurt economic performance in the country. America too is struggling to grow as the shutdown with the government shutdown, there are fears that growth in this quarter could fall to zero. This is setting up stage for a global recession and even though we think Nigerian equities are cheap today, we could still see further declines if the global economy slips into a recession this year,” said Maju Eldad, Lecturer of Economics at Federal University of Kashere, Gombe.

The stock market has remained somewhat flattish this year as investors wait and see if the elections will be successful and to ascertain if the market outlook will improve amidst the threat of another global economic recession. The Nigerian Stock Exchange All Share Index has returned -2.53 percent this year but the index gained 0.26 percent on Friday.

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