Nigeria gloomy investment outlook: what option available for investors
By Oludare Mayowa
What is the future of your investment in the money and debt markets in the face of falling yields across the board on fixed income and savings deposits?
This is the question in the minds of many domestic investors trying to cope with the barrage of economic hardship in the country and at the same time focusing on the future.
The Central Bank of Nigeria (CBN) had last week slashed its benchmark interest rate by 100 basis points to 11.5 percent in a bid to stimulate credit growth in the economy.
The consequence of the CBN decision was the downward review of interest rate payable on savings deposits in banks from 1.25 percent to 1.15 percent in compliance with the recent directive of the regulatory bank pegging interest rate on savings to 10 percent of its Monetary Policy Rate (MPR).
But the decision will hurt millions of bank customers who deposited their hard earned money in savings and fixed deposits with a view to get some returns on their funds.
At this week’s debt auction, the Debt Management Office (DMO) sold Treasury bills worth N133.97 billion with yields on the short-dated debt fallen below the previous rate. The 91-day Treasury bills were sold at 1.08 percent, 6-month bills at 1.49 percent while the 1-year paper was sold at 2.80 percent.
A similar trend was noticed at the bond auction last week with yields on all the debt issued declined across the board and far below the current inflation rate.
Considering the tenor of the debt instruments, it appears that many investors who are rushing to put their surplus funds in the debt instruments are contented with earning diminishing interest on their investment.
Nigeria’s inflation rate currently stood at 13.2 percent as of August and with yields on 30-year paper trading at 9.5 percent, its obvious retail investors may have to start looking elsewhere to invest their surplus money if they want to earn positive income on their money.
Though, the bulk of investors in the fixed income market are usually institutional investors, especially pension and insurance firms and probably mutual fund managers, the declining yields on bonds call for concern.
One category of people at disadvantage under the prevailing low and even negative interest rate regime are people due for retirement in few years and pensioners who only source of income will probably be their savings.
With the impact of the outbreak of the Coronavirus pandemic on the economic outlook, more people might be forced to early retirement while the prospect of business growth deems, putting into jeopardy their ability to earn decent income from their savings over the years.
The options available in an economy full of uncertainty is probably the equity market, which has in recent time continue to experience resurgence from bargain hunters who take advantage of low valuation of stock to position in the market.
Chief executive of APT Securities, Garba kurfi expects the equity market to benefit from the low and negative interest rate regime and increase value for shareholders.
The question, how much of growth can the capital market experience in the face of gloomy economic outlook, surging government debt and declining disposable income due to rising inflation and job losses.
Kurfi believed that the low and negative interest rate regime, devaluation of the local currency and shortage of dollars will eventually enhance the value of investments in the capital market.
In the coming days, the third quarter financial results of the companies listed on the Nigerian Stock Exchange (NSE) would be released and could be a pointer to what will become of those who have rushed to invest in the market in recent time.
However, investment analysts are canvassing the diversification of portfolio by investors to hedge against the adverse effect of the economic outlook and low yields in the economy.
The probability of Nigeria slipping into recession in the third quarter has further heightened the fear of many investors over the future of their investment in the country.
Already many of them are diverting part of their funds into the property market in the belief that investment in the sector could protect them from the adverse effect of economic recession.
Many people are taking advantage of the fact that property prices have fallen in recent time due to selling by some Nigerians relocating abroad and some trying to reevaluate their investment in the face of pressing needs.
Nigeria has the largest number of people living in extreme poverty in the world. Nearly 50 percent of the population endures extreme poverty; the unemployment rate stands at around 23 percent, and a significant portion of Nigerians lack adequate education.
This may further be exacerbated by the challenges facing many businesses in the country as they continue to battle with poor infrastructure and harsh regulatory environment.
The question again is what is the fate of your investment and your future under the prevailing circumstance in Nigeria? How could an average person survive the present economic hardship with his/her meager resources and still be able to set aside money for the future?
What would become the value of the little money set aside for pension and future sustenance as Nigeria faces gloomy economic outlook and recession in the third quarter?
How much of adjustment can anyone make under the present circumstance to enable them cope with daily requirements and still be able to set some money aside with the hope that there would be enough for the future?
Are Nigerians dooms to a life of suffering as the quality of governance continued to deteriorate with corruption in high places eroding the resources of the country?
Answers to all these questions are floating in the air and only very few who could properly dimension the trend of things could see through and work their way round the current and future economic outlook.#GFD