Some say now is the best time to invest in the Nigerian capital market, while others have predicted elongated period of economic recovery. Where do you see an investor in this dilemma?
The downward trend in the equities market presents buying opportunities, in my view, as many of the listed stocks are believed to be under-priced compared with their intrinsic value. We at Stanbic IBTC believe it is the right time for investors to take position in the market, especially in quality names with attractive valuation supported by compelling outlook.
Rather than refer to Nigeria’s current economic situation as “impairment”, we prefer to call it a “slowdown”, as the country passes through this transition phase to what we potentially call a reinvigorated growth phase. We believe ongoing economic reforms, if properly managed, will be the much-needed catalyst to unlocking the country’s vast potential. We favour development of domestic manufacturing capacity as a sustainable fulcrum for Nigeria’s growth. There is an urgent need to develop other key manufacturing sectors of the economy to an export potential to be less dependent on oil for foreign exchange and deliver inclusive growth.
While we acknowledge that the weak macro could keep valuations depressed for a prolonged period, it is difficult to pinpoint when the market will turnaround hence in the near term, we will advise investors to take positions in quality names as the opportunity arises.
Nigerian capital market is predominantly equity-driven, but what else can be done in line with the diversification drive?
More products are being developed by market operators and participants to further deepen the Nigerian capital market. Over the past few years, a few products such as Exchange Traded Funds have been introduced and constant engagements are going on to build a suite of tradable products. We believe having a range of products will also attract new investible funds. Additionally, the sector split of the NSE is skewed to financials and manufacturing sector and not a true reflection of the Nigerian economy. The listing of more companies in sectors such as ICT, agriculture, power and oil and gas should increase diversification.
The Debt Management Office a few years ago appointed Stanbic IBTC Stockbrokers as the stockbroker to FGN Bonds, with a mandate to create awareness on retail bond. What has been the response?
Market response has been positive and retail investors’ participation has improved over-time. We expect further future improvement in the level of participation. Stanbic IBTC Stockbrokers Limited in its role as stockbroker to FGN bonds has organised seminars/workshop in partnership with the DMO and the NSE aimed at creating more awareness on the opportunities in the fixed income market. Yes, there has been renewed passion for retail bond trading and we expect this to translate into more transactions on the floor of the NSE.
What about the appointment of the company as one of the 10-member list of Market Makers?
Our role as a market maker is to correct price imbalances whenever the need arises, as well as provide liquidity in stocks, which will ultimately help the capital market. We also think that the introduction of Securities Lending product will aid Market Makers in performing their role effectively.
What will you consider as the key takeouts from last year’s Standard Bank West Africa Investors’ Conference?
The theme of the conference, held in February 2016, was unlocking Nigeria’s Potential…. “Growth through diversification” and this was particularly borne from our belief that diversification of government revenues away from oil will be a step in the right direction towards sustainable growth of the Nigerian economy. We had various speakers during the conference that spoke deeply about how vital it is for Nigeria as a nation to develop a more private-sector driven and diversified economy in order to attain real and sustainable economic growth and development. Proper alignment of fiscal and monetary policies is equally very important.
This year’s conference would be the eighth edition. How would you assess the objectives?
Yes, they are being met. Inflows, whether as Foreign Direct Investments or Foreign Portfolio Investments are critical sources of capital that ignites growth in any country. However, these flows would not be available if investor confidence in the country is lacking and that has always been one of our goals for the conference yearly. It is to expose foreign and domestic investors to the numerous opportunities that abound in the country. Although the prevailing macro-economic situation in Nigeria has affected investors’ confidence in the market, we will continue to show opportunities that make Nigeria a critical economy in the frontier market.
With hindsight, are there some aspects of the last Conference that would require adjustments for this year’s edition?
We will continue to remind the corporates the importance of senior management representations and continuous engagement with the investors during the conference. We see our conference as a unique platform for a two-way feedback mechanism between the investors and the corporates. We will also incorporate the feedbacks received from attendees to make the conference better.
Having seen the country in this economic phase, what compelling argument will you offer to make anybody invest now?
Nigeria being the biggest economy in Africa in GDP terms, offers a compelling reason for investors to consider investing in it. With the new government in place, we expect to see some positive changes, though it might be gradual and we expect long term funds to look at the potential returns on a risk-reward basis, which we believe will justify investing in Nigeria. Currently, there are investment opportunities in infrastructure, agriculture, manufacturing and real estate.
What specific areas of the economy will you be advising investors to tap into?
We think asset classes exposed to Nigeria’s infrastructure and agriculture sectors offer good investment potential. Nigeria’s high infrastructural deficit and the underutilised capacity in agriculture is a supportive catalyst that could underpin growth in the medium term. We believe that with the 28 per cent of the N7.29 trillion 2017 budget that is billed for capital projects, which infrastructure forms a major part of, that segment should start improving moderately.
Nevertheless, we acknowledge the poor level of execution of capital budgets in the past and the low capacity to execute. That is the reason why the engagement of the government with the private sector is welcome and encouraging and could result in a faster pace of closing the infrastructural gap. The development of infrastructure such as electricity, railway transport and more road networks should unlock opportunities in sectors such as agriculture and manufacturing. Given our population, the country is a ready market for a number of the finished goods so the export market should not be an immediate concern.
What role can market operators like you play to break the intractable debate over listing of major oil and gas, power and telecoms companies on the Nigerian Stock Exchange on the local bourse?
The market can support the government’s financing efforts by raising capital for infrastructural projects through primary issues and public offerings. The major point here is capital whether for expansion or for diversification or even taking on new projects- that is what the stock market provides. Companies that have a good business model and a good track record of profitability over the years, investors will want to be part of such businesses. The challenge we now have to take on as market operators is identifying those companies, engage them and intimate them of how the Nigerian stock market can both create more liquidity and value for their business. I must mention that although the operating environment is quite challenging at the moment for most businesses in those sectors. There has to be a really compelling story for the companies wishing to list on the exchange to get their desired level of liquidity.
Considering the general apathy in the market, particularly by foreign investors, how well can the market support government’s financing efforts?
The Federal Government has always and will continue to tap into the fixed income market as a way of providing funds and finances to fund budget deficit. We believe that the domestic pension funds and other investors have sufficient capacity to support government’s bond issues. Issuing project related bonds would also be an avenue to raise funds to plug the budget deficit in our view. This will however, have to be looked at from a contract sanctity perspective. On the equity side of the capital market space, one way to fund the government deficit is by getting some of the properly-run government agencies to list on the exchange. Take as example, NNPC or perhaps the National Communications Commission (NCC) listing on the market. The power of sovereignty alone could be compelling enough for investors to invest and hence for the government to source the liquidity it requires.
How has stock market volatility and the weak performance of recent public offerings affected your overall performance?
Investor apathy towards Nigerian equities at the moment cannot be over-emphasised and all due to a number of reasons- weak outlook of the Nigerian economy following the crash in crude oil prices; reduced foreign exchange liquidity; and weaker company-specific fundamentals, among others. The impact has been felt on the entire bourse with the Nigerian All-Share Index declining by about 16.14 per cent, 17.36 per cent and 6.17 per cent in 2014, 2015 and 2016 respectively. This is significant as investors are not keen on taking positions at the current price level because of the fear of further diminution. Although there is still liquidity in the system as a whole, we will continue to engage investors to look at sound investment. We remain and would continue to work towards being the number one stockbroking firm in Nigeria.
What goals have you set for the company in the next four years?
Yes we have consistently been the market leader in the Stockbroking space over the last couple of years. Just like the brand we represent, we aspire to continue to be the market leader. In addition, we look forward to partnering with the capital market regulators to introduce and champion progressive initiative relating to investment vehicle and education.
Article found at: https://guardian.ng/business-services/nigeria-remains-choice-investment-space/Read More Industry News