• Friday, March 29, 2024
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The outlook for market in 2020 is attractive

The outlook for market in 2020 is attractive
Introduction
The Nigeria’s Capital Market operated under a tough economic climate in 2019 as evident in incessant bearish trend until the policy of the Central Bank of Nigeria (CBN) on Open Market Operations (OMO) crashed yields on fixed income securities. Expectedly, investors took flight for safety and reverted to purchase of equities with multiplier effects on the rise in many performance indicators. The Nigerian Stock Exchange remains an investment destination.
Outlook for 2020
The outlook for the market in 2020 is attractive. But this is contingent on fixing of Nigeria’s weak economy where the Gross Domestic Product (GDP) currently grows at 2.3 percent while the country’s population grows at 2.6 percent, a misnomer. We expect faithful implementation of 2020 budget which was approved on record time. Government at all tiers should also take advantage of the market to mobilise fund for development projects. However, we expect the market to be driven by a mix of factors.
Effects of negative real return on fixed income securities following the new policy on OMO will continue to enhance demand for equities and attract more investors into the market.  We expect consolidation to be the hallmark of Insurance Sector as the market shall witness a flurry of mergers and acquisitions as well as business combination in a bid by insurance companies to recapitalize in line with the new policy of the National Insurance Commission (NAICOM).
Many stocks are still trading below intrinsic values, hence, attractive valuation will attract more investors. We expect intense competition among Securities Exchanges with the emergence of FMDQ as a full-fledged Exchange and Lagos Commodities and Futures Exchange (LCFE) which is set to commence as a Pan African Exchange. Already, NASD Plc has raised the bar of Over-The-Counter (OTC) trading in Nigeria. But we expect the government to intensify efforts on creating conducive business environment through its policy on ease of doing business and building security.
The Securities and Exchange Commission (SEC) has just released the rules on trading in Derivatives and this is consistent with the plan by the Nigerian Stock Exchange to commence trading in Derivatives in 2020. This is expected to enhance price discovery and usher investors on The Exchange to modern risk management whereby they can hedge against volatility. We expect introduction of more innovative products to accompany derivative trading. Barring unforeseen circumstances, The Exchange is likely to commence demutualization and this will change the structure of the market as the current owners, the dealing member firms shall become shareholders and thus bring a new era of corporate governance on The Exchange. With the crash of yields on fixed income securities, pension funds may opt for high-yielding stocks in the securities market and this is expected to boost market activities.
Sectors to watch.
Regardless of the nature of the economy, in 2020, financial, health, technology and agriculture sectors have strong potentials to provide good returns for investors. Financial Sector is noted for liquidity. The sector is fast attracting millennial customers through innovative services that thrive on technology.  Health Sector is recording advancement in medical equipments while pharmaceutical sector is evolving on daily basis. We therefore expect Health Sector to provide investment opportunities in 2020. The Technology Sector itself is ruling the entire business world. The relevance of Artificial Intelligence (AI) is already gaining momentum.
Also, innovative investments such as blockchains and Cryptocurrency are highly dependent on technology. Trading on the securities market is technology-driven. The Sector holds potential for good returns. The Federal Government is committed towards reactivating agriculture and other forms of Small and Medium Scale Enterprises in Nigeria through its policy of Anchor Borrower Programme. The success of the programme will be measured on its impact on the GDP and its ability to increase export in order to generate foreign exchange for the country and increase external reserve.
Sola Oni is CEO, Sofunix Investment and Communications