The Nigerian capital market, like other global markets, will continue to be impacted by macroeconomic trends. Given the prevailing challenging economic conditions the country is facing, Nigeria’s equities market has experienced volatile daily gains and losses.
In any given week, the market could gain on Monday, decline on Tuesday and Wednesday, only to inch back up on Thursday and decline on Friday. Given this unpredictable nature of the market, investment professionals the world over agree that the best investment decisions are born out of patience, a careful review of market indicators and sound financial advice.
It is no secret that 2019 will see the equities market close the year on a bearish note with the Nigerian Stock Exchange’s All Share Index (NSE ASI) currently at –15.6% Year-to-Date (YTD). In a recent analysis by Mathias Althoff, Portfolio Manager at Tundra Fonder, the current state of the equities markets presents an opportunity for forward-thinking investors to come into the market with stocks trading at price-to-earnings (P/E) and price-to-book (P/B) ratios at 10-year lows.
The rationale is simple: a bear market is characterized by declining prices. It is more profitable to buy a stock when it’s cheap to say, N2.50 then sell when the price increases to N4.00, than to wait till the price rises to N3.80 only to sell at the same N4.00.
A careful analysis of historical performance will show that while a bear market is upon us now, the tide will turn. When it does, only proactive investors will be ready to ride the waves. Consequently, it is important that investors in the equities market are careful to neither hit the panic button and sell when stock prices begin to decline, nor go on a buying spree in the euphoria of rising prices. While it may appear counterintuitive, the legendary Warren Buffet did advise that as an investor, it is wise to be, “fearful when others are greedy and greedy when others are fearful.”
Fortuitously, the capital market presents several other investment opportunities that also deliver competitive returns, while offering diversification and a degree of security. In 2011, The NSE introduced Exchange Traded Funds (ETFs) into the market to allow retail investors to diversify their portfolios, minimise risk and optimise returns. Much like mutual funds, ETFs can be made up of stocks, bonds, commodities, or even a mix of securities. The fundamental difference is that ETFs can be traded live on The Exchange just like regular stocks.
Currently, there are 9 ETFs listed on The Exchange – 2 thematic ETFs providing access to Pension-compliant and Shariah-compliant stocks, 2 broad equity market ETFs tracking the NSE 30 Index, 3 sector-based ETFs, 1 commodity ETF, and 1 bond ETF tracking exposure to benchmark FGN Sovereign Bonds. The beauty of the ETF, therefore, lies in its capacity to accommodate various risk appetites, investment objectives and strategies, and industry preferences. Furthermore, ETFs listed on the Exchange have a history of paying dividends which generate income for the investors.
The diversity and accessibility in today’s capital market also afford investors the option of fixed-income investments. In 2017, the Debt Management Office in collaboration with the NSE introduced the FGN Savings Bond allowing investors to come into the market with as little as N5,000.
This product has helped to debunk the primary myth that investing is the preserve of the affluent by opening up the market to all income classes. The FGN Savings Bond can also be traded in the Secondary Market on the trading platform of The NSE.
To truly enjoy the benefits of the capital market, investors – existing and potential – must be strategic in building strong portfolios that deliver gains in the long run. While equities often present the highest potential for gains, investors in this market must have a long-term view to maximise returns. It is, therefore, essential that investors explore other safer investment instruments such as ETFs, bonds, mutual funds, etc., which are all available in the market.
Ultimately, capital market stakeholders are working assiduously to deliver value to investors. The NSE on its part continues to deploy initiatives that maintain the highest level of regulation and protect investors’ interests including the: Investors’ Protection Fund (IPF) that will compensate investors with genuine claims of pecuniary loss against dealing members firms. Listed companies are also required to undergo the Corporate Governance Rating System (CGRS) that measures listed companies against the highest levels of governance and anti-corruption standards.
In its efforts to enhance market activities and increase access to information, the Exchange has made some noteworthy advancements. In 2018, the NSE launched the first African securities exchange artificial intelligence (AI) powered chatbot, X-Bot, that responds automatically to enquiries through Facebook Messenger. 2019 also saw the release of X-Mobile, a dynamic and user-friendly mobile app, to enhance investors’ participation in the Nigerian capital market.