Financial market analyst and Managing Director/CEO, Cowry Asset Management Limited, Mr. Johnson Chukwu, has said that he expects weak Q2 and Q3 results will drive equity prices lower.
In his presentation at an event on “H1’20 Review; Expectations and Investment Strategies in H2’20,” Chukwu noted that investors with long term horizon may be facing the best time to take position.
The virtual event had in attendance government officials, apex and self-regulatory organisations, capital market operators, investment bankers, policymakers, chief executive officers (CEOs), economists, researchers, analysts, academics, and private equity firms.
According to Chukwu, “we advise investors to focus on fundamentally strong companies with low P/E, high dividend yield and historically high Return on Equity (ROE).”
He noted that sectors less impacted by the pandemic, ICT, healthcare, financial services and agriculture, may offer additional value.
“Low interest rate is expected to stimulate credit expansion to the private sector. This may however be constrained by limited number of quality credit demands occasioned by weak economic recovery.
“We favour investing in the short-term bond and in fixed deposit to retain the ability to benefit from the expected upward shift in the yield curve.
“We may see new corporate bond issues as firms look to take advantage to the low yield environment. Focus on Investment grade Instruments with adequate risk premium,” he said.
On H1’20 macroeconomic review, Chukwu said that after posting a loss of 14.6 per in 2019, the Nigerian equity market jumped to an excellent start in the first few week of the year, posting a world best YTD return of 10.70 per cent on January 20, 2020.
“However, any hope of a reversal of the two year consecutive losses posted by the NSE all-share index was short-lived as Covid-19 took hold grinding global economies to a halt and sending oil prices tumbling with the Brent crude price touching $19.3/b in April 2020.
“The NSE ASI went from 26,842.07 at the beginning of January 2020 to 20,669.38 in April (shedding over 20 per cent), before recovering slightly to 24,479.16 at the end of June 2019.
“Interest rates generally moved southwards in the first half of 2020 amid liquidity glut created by a Central Bank of Nigeria directive which banned high net worth individuals and non-bank financial institutions from participating in its Open Market Operations with effect from October 23, 2019.
“Against the backdrop of sustained monetary policy easing, high system liquidity, we saw increased demand for short- and long-term Federal Government debt instruments which resulted in sustained crash in domestic stop rates – 364-day TBills fell to 3.75 percent in June 2020 (from 5.50 per cent in December 2019) while 5-year FGN Bonds fell to 8 per cent in June 2020 (from 11 per cent in December 2019),” he said.