Amidst election and other uncertainties which bewilder investors away from the Nigerian investment space, investment experts have suggested that a way to profit could be to invest in short-term instruments.
The weak performance of the equities market in 2018 incited an influx of investors into the fixed income market. Emerging market contagion, pre-election jitters, weaker than expected performance of macroeconomic variables and continuous rate hikes in the US had significant impacts on the market.
The CBN, therefore, felt the need to keep rates as attractive as possible to keep foreign inflows coming and keep domestic participation steady. The average treasury bills and bond yields thus rose to high points of 15.64 percent and 15.65 percent in 2018, even though the benchmark rate remained unchanged at 14 percent.
Given the look of things, the CBN will not be willing to adjust the benchmark rate at least before the election, as it has been very effective thus far, prompting investment expert to advise prospective investors to look at short-term investment until after the election.
Rotimi Jinadu of Meristem Securities Limited said, “based on our interest rate outlook for the year, which is stability, I believe that investing in the one year bill for Treasury bills investment and at the long end of the curve in the bond space, both in the first half of the year will create opportunity to mitigate reinvestment risk of rolling over bills at lower rates for the former and reap capital gains for the latter, when interest rates drop.”
“I expect that this year, participation across all instruments in the fixed income market is expected to strengthen in 2019 as rates are projected to remain high in the first half of the year, however, there is a possibility of downward movements in rates in the second half of the year as the causative factors of higher rates in 2018 are likely to have reduced,” Jinadu added.
In similar tone, Wale Olusi, Sub Saharan macro and consumer analyst at United Capital said, “this year, there is a high possibility for tighter interest rate environment hinging on high maturity levels and Foreign Portfolio outflows due to hike in Federal Reserve rate and perceived election risks, plus possible higher borrowings by the Federal Government. More so, the likelihood of an increase in fuel price in 2019 will stoke inflationary pressure and force the monetary policy to keep interest rate elevated.”
“Putting in mind all of these, I will advise investing in near maturing instruments in short term instruments taking advantage of the attractive rates that we believe are available in the near term. Asset prices are cheap in Nigeria, for example, our market pay was at 9 times as at the end of December, and that is very low compared to Africa and emerging markets,” He added.
Speaking on what he expects post-election, Olusi said he feels that Nigerian assets will witness a sharp rebound in the aftermath of the election.
He said, “There are a lot of challenges affecting the economy, both domestic and foreign, but if you look at asset prices in the country and how much they are trading for, and the fact that these uncertainties will come and go, take the election for example, it will come and go. So, come February, March, April, we are expecting that a winner will emerge from the election and we will paddle through, all these assets that we are looking at as not being attractive, will become more attractive and judging by what we have seen in the past few years, after a downturn, there will be a sharp rebound.”