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Home Opinions Blurb

Examples Of Where The Nigerian Stock Market Beats Investing In Forex

Nairametrics by Nairametrics
October 9, 2016
in Blurb
Data: Nigeria’s Domestic Credit To Private Sector
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Imagine you had a million naira on June 1st and decided to invest in “forex speculation”. If you bought dollars at the time, you would have had about $2,898 using a black market exchange rate of N345/$1.

The exchange rate is currently N474/$1 at the black market, thus your investment will now be worth about N1,373, 652. So in about 4 months, you would have gained 37% without doing much. That is a classic example of making your money work for you.

The above example, is the reason why forex speculation thrives in Nigeria.In this current economic environment, it is quite difficult to get people to invest their money in anything else other than forex. Not with these sort of returns. However, there is still a small case for equities.

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Take the case of Total Nigeria Plc.

Total Nigeria Plc. 3 months chart
Total Nigeria Plc.
3 months chart

Total Nigeria Plc as at July traded at about N182. Upon release of its half year results, the stock began a rally that will take the share price to as high as N295/share. That’s a remarkable 62% within 4 months. And yes, you guessed right, a better return than investing in forex within the same period. In fact, Total has returned about 95% since January this year and about 105% in the last one year. It is essentially a money doubler.

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Case for Stocks over Forex?

There has been a lot of talk about choosing investing in forex over stocks for the obvious reason of risk. In terms of risk, one can hardly go wrong with forex, compared to stocks. However, there are some stocks that have posted much better returns than stocks. These stocks have sound fundamentals and have proven to be resilient in this harsh economy.

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Take the examples of Okomu Oil and Presco Plc. Two companies in the Agric Sector. They have each returned about 40% and 31% respectively in the last one year. What about United Capital? The stock has returned about 123% in the last one year and still trading at a P/E ratio of 4.6x. This year alone it has returned 91.6%. Most analysts expect it to cross N3, if they maintain the same dividend policy as last year.

Mobil Nigeria another Oil company similar to Total has returned about 39% in the last one year. GTB is another example of a bank that has returned about 29% this year alone.

While forex remains a safer investment currently, there are still low hanging fruits in the stock market that investors can buy. Remember, you are better off diversifying your portfolio than putting all your eggs in one basket. It’s what every smart investor must do.

 

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