Investors have been urged to target fundamentally-sound and dividend-paying stocks, to reposition for future capital appreciation, especially in the 2019 financial year. The experts, who expressed optimism that with new investment policies from the Central Bank of Nigeria (CBN), investors’ focus would shift towards equities, and argued that the Nigerian Stock Exchange (NSE) new lows and cheap stock prices offer investors opportunities to position for short and medium-to-long-term capital appreciation.
They advised investors to increase stake in sectors like insurance, banking, industrial goods, services, as well as oil/gas, noting that these stocks have become defensive in recent times, and could appreciate in no distant time.
According to them, discerning investors need to leverage the opportunity as a way of increasing their portfolio and recouping their investment immediately a recovery stage sets in.For instance, the Chief Research Officer of Investdata Consulting Limited, Ambrose Omodion, said traders and investors need to change their trading strategies due to the review of the NSE’s pricing methodology, which stipulates that all class of equities need uniform 100,000 units to effect any price changes.
“This may be part of efforts to mitigate the persistent price decline that has seen many stocks trading at between their five and 10-year lows and even more, in recent times.”Discerning investors should latch onto this, meanwhile, as a way of averaging down and recouping their investment immediately a recovery stage sets in, helped by economic policies when things start to change gradually.
“In the process, equity prices will be influenced positively, while investors watch for sectors that have become defensive in recent times and could go bullish in no distant time.”Analysts at Afrinvest Securities Limited, said the recent CBN restrictions on Open Market Operations (OMO) will restore confidence in the volatile stock market, considering the low stock prices.
“The CBN recently restricted individuals, local corporates, and non-banking financial institutions from participating in both the primary and secondary markets for Open Market Operations (OMOs). Following this directive, we expect investors’ focus to shift towards equities due to current low prices and attractive dividend yields.”
The exclusion implies that only Deposit Money Banks (DMBs), and Foreign Portfolio Investors (FPIs), can participate in OMOs, while everyone else, including non-bank financial institutions, will have to shift focus to T-bills and other investment options. Indeed, the policy is largely in line with its drive to divert liquidity away from risk-free instruments to the real sector. The apex bank had earlier instructed banks to prevent customers with outstanding loans and recipients of intervention funds from investing in T-Bills or OMOs.
With the restriction, retail and institutional actors will have to seek alternative destinations for their funds, creating extra liquidity in other assets.The restriction of key corporates, such as PFAs and insurance companies from participating in OMO is expected to free up excess investable cash for allocation to assets beyond fixed income alternatives.
The experts believed that this would ultimately increase investors’ appetite for stocks, especially the fundamentally-strong equities and restore confidence in the market.
