Oct 13 (Lagos) - As investors in Nigerian stock market continue to count losses still there is light at the end of the tunnel. Here are some likely catalysts:
- Potential deal on Brexit - could make investors in London start looking frontier markets again.
- US-China deal - If a full deal happens before end of 2020, it could make analysts worldwide once again start looking at frontier markets.
- Nigeria GDP - Any increase in GDP will create buzz in international markets over the invest-ability in Nigeria. Many analysts simply stop considering a market if the GDP growth falls below set standards. Nigeria's GPD is on comeback trail and rising tensions in middle east could help matters at home.
- Middle east uncertainty - Increasingly volatile situation in middle east threatens crude oil prices and global growth. However higher crude oil prices are good news for Nigeria economy provided the government can keep oil producing areas free from attacks by militants in the Niger Delta.
- Low asset prices - stock prices on the stock exchange have been badly beaten down. Yet local investors in Nigeria are not willing to get into the stock market to take advantage of the situation. At this stage, it is best to cherry pick fundamentally sound companies and one could see gains in medium term.
What we mentioned above are catalysts for return of bulls at the stock market. However there are still addressed issues which are local in nature and unless these are put to bed, the return of bulls could of short-lived and may end-up becoming a bull-trap. what are these issus?
- Exchange rate uncertainty - when will government officially devalue Naira again. Usually Nigeria devalues its currency every 3-4 years. Last one was in 2016 so next year it will be 4 years. Unless government re-assures us, we should expect a devaluation which could actually be good for economy in the sense that there could be 1 exchange rate instead of 3-4 exchange rates applicable.
- Increased taxes - There are rumors that Government will keep increasing VAT. If this happens, do not expect foreign investors to take a serious look at Nigeria as an investment destination.
- Government spending - Nigeria's government borrows money just to pay its own salaries. Most of the budget is made up of governments own salaries, benefits, allowances etc. Nigerian politicians are among the highest paid in the world. Whereas Nigeria remains one of the poorest countries in the world. This situation is dangerous as the citizens of the country and all the time prepared to protest/demand higher minimum wage etc. This leads to loss of productivity and does not help our GDP.
If crude oil prices rise, we can expect some green days possibly at 2.5 week rally in late 2019/early 2020 but in order for that to be carried on we will have to address some of these issues. If someone wants to look at the options in stock market - take a look at only fundamentally sound companies.
Other option is treasury bills which are still yielding almost 14% for 1 year. That's a very decent return on risk-free basis. Choice is straightforward for most people. But that decline in asset prices is also beginning to look attractive almost.
reporting for easykobo.com on Sunday, Oct 13 2019 from Lagos, Nigeria