Investing in Nigeria: Top picks for 2021

Fo l l owi n g 2020, a year the world faced an existential crisis with many households and businesses losing incomes, survival was of utmost importance. There were high levels of uncertainty in the economy, forcing many investors to hold

on to their cash.

The year 2020 was characterised by low-interest rates, which therefore saw a low yield on fixed income instruments, consequently leading to funds switching from the fixed income market to the equity market, especially in the second half of the year.

Now, the year 2021 has started under the clouds of the resurgence of the second wave of the Covid-19 pandemic, but there is hope of things getting better due to the discovery and production of vaccines and economic forecasts from international organisations.

It is still early in the year and the question on the mind of business owners and individuals is where to invest and make money. The direction of interest rates will be a major determinant for investors in determining the asset classes that they will invest in 2021.

Businessday spoke with seven investment analysts from some of the top firms in Nigeria, to get insights on how those desirous of investing could deploy their funds this year.

Moses Ojo, chief economist/head, Investment Research, Pan African Capital Holdings Limited: Ojo predicted there will be a shift from equity market to the fixed income market, i.e. a reversal of what we have currently, which will lead to a moderation of the current bullish trend in the equity market.

“For 2021, with headline inflation at an all-time high of 15.75 percent in December 2020, we expect the monetary authority to shift their focus from economic growth to price stability. Once the economy exits recession, the monetary authority is expected to adjust the policy rate to combat headline inflation.”

The shift will see an increase in rates across the financial market, consequently leading to funds switching from the equity market to the fixed income market.

Ayodeji Ebo, senior economist/head, Research and Strategy, Greenwich Merchant Bank: “Investors need to increase their risk appetite a bit this year for them to be able to bridge the gap between inflation overall the return on their investment.”

Just like Ojo recommended, Ebo said people should look at commercial papers and structured products (fixed income instruments) from licensed asset managers that may be more long-term, for example, one year and above that have attractive interest rates.

Wale Olusi, head of Research at United Capital plc: “For those who have dollars, they can invest in the Eurobond market. Nigeria might come to that market this year and the yield is quite decent. For cryptocurrency, with the recent ban from CBN, things may be little different as bitcoin is expensive now, so you need to wait for some form of correction but at the end of the day it depends on the risk appetite of investors,” Olusi said.

Ahmed Jinad, head of research at Meristem Securities: Contrary to views of Ebo and Ojo on fixed income, Jinad is not bullish on the fixed income market in the first half of the year given the prevailing policy with respect to interest rate and yields at the moment.

“Equities were the top performing asset last year, and for 2021 it will be one of the go to assets for investors. Yield in the fixed income space is still very low and unattractive, especially when you look in terms of the real returns you get, given the rising inflation. Given that assessment, you would expect that equities will still be attractive for the most part of the year. Even though we expect some kind of correction in the later part of the year.”

For the stock market investments, technology stocks, renewable energy, e-commerce, logistics, construction, cement among, others are the sectors to invest in this year.

Abiodun Keripe, head of research at Afrinvest Limited: According to Keripe, sectors such as agriculture, trade, manufacturing and banking, especially tier one that did not do well during the pandemic, are well positioned now to recover as activities pick up generally in the overall economy.

Gbolahan Ologunro, senior research analyst, Cordros Securities: “If you see a company that has been able to come up with a framework that makes consumers order online and get those products delivered to them, I think those are the ones you should pay attention to.

“In that regard, you can’t overemphasise the benefits of technology stocks because the pandemic has amplified their importance and significance to the digital economy.”

He further added that with Joe Biden as president of the United States of America, and his strong commitment to climate change, companies and investors should pay attention to renewable sources of energy because climate change is currently a burning issue in the global economy.

Mustapha Wahab, investment analyst, Chapel Hill Denham: “Food and any essentials are thriving in this period based on their latest financial reports showing impressive numbers. Also, the gradual shift in the use of cement for road construction will be beneficial for companies in the cement and construction sector, thereby presenting investors a viable space to invest in.”

Investors can look at the oil and gas space due to the recovery of oil prices and possible passage of the Petroleum Industry Bill.