Financial analysts have predicted increased liquidity and domestic participation in the equities market in 2020, considering the recent favourable monetary policy.
Although they argued that domestic investors may not sustain the current level of bull-run through 2020, but noted that due to lack of investment vehicles and avenues to channel funds, the equities market remains a good option for investors.
Specifically, the Head, Research and Strategy at Codros Securities, Jolomi Odonghanro, said equities currently offer the best long -term inflation hedge.
Explaining part of the firm’s special report, titled: Nigeria in 2020: At the Cliff’s Edge’, Odonghanro said: “Clearly, fundamentals are not strong enough to drive a natural correction in the equities market, however, recent policy directives from the Central Bank of Nigeria might offer some respite to the domestic bourse.
“The apex bank recently released a circular restricting local non-bank corporate and retail investors from participating in the OMO market. The CBN, this year, also increased banks’ loan-to-deposit (LDR) to 60 per cent, and to 65 per cent, with a deadline of December 2019. The immediate effect of the OMO restriction was a sharp decline in fixed income yields firmly into single-digit territory amidst a reduced supply of investible naira assets,” the report said.
According to him, an estimated N2.73 trillion of non-bank corporate and individual OMO assets maturing over 2020 will be in search of positive inflation-adjusted returns.
“This presents a positive case for equities as market selloffs in recent years have provided an opportunity for dividend yield investment strategy,” he said.
For the banking sector, which accounts for 30 per cent of overall market capitalisation, he pointed out that despite the increased risks, there remains immense value, adding that the fundamentals of the banking sector remained compelling even as market sentiments have kept prices low.
“The banking sector will still do well this year; the expansion of risk assets base in the banking sector should drive earning performance in the sector. We will still see single-digit growth among the tier 1 banks.
“The CBN allows banks to chase any obligor. Any obligor to any bank is seen as significantly positive. It means you will have a reduced NPL from this obligor that are actually strategically defaulting. It is positive for the banking sector.”
Also speaking, a macroeconomic analyst at Codros, Wahab Mustapha, urged long-term investors “to take positions in our recommended stocks, with a view to extracting value as the market corrects in future periods.”