Ashade: Investors Should Have Clear Investment Objectives

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The Group Chief Executive Officer of United Capital Plc, an investing banking group, Mr. Peter Ashade, in this interview with Goddy Egene, speaks on the operations of the firm and various capital market issues. Excerpts:

Given the volatility in the market, what is the best way you would advise investors to play the market?
First, every investor must understand the market. When you do not understand where you are playing as an investor, there is no way you can take advantage of what is happening. Volatility is part of the capital market antics. An investor who understands that the market could go up and down is best suited to make calculated decisions towards meeting investment goals. The second is having a clear objective for investing in the market. Some may invest to earn revenue, and others for capital appreciation. The third is to tame greed.

Sticking to a clear investment objective is an effective principle for savvy investors. For instance, you can say if I get 10 per cent, I think I have made my day. I should leave. Then you discover that the share price of your investment goes up and gets to that 10 per cent goal. If you still see that the markets rally beyond that, and you decide to wait a little, then that’s greed setting in. In waiting a little, the market could be up 11, 12 per cent and before you know what is going on, you are down seven per cent. So greed also needs to be addressed in making investment decisions. In summary, you must understand the market you are playing in, stick to a clear objective for investing, and ensure that you are not greedy in terms of your investment outlook.

United Capital Plc recently released its Economic Outlook Report, can you tell us more about the report and its significance to stakeholders?

We recently launched our 2019 market playbook titled “Sailing Through the Storm,” wherein we not only acknowledged the global and domestic factors that would drive volatility this year, but we also recommended strategies on how investors can take advantage of the environment to beat the market. In the report, we maintained that economic recovery will remain gradual and considerably underwhelming in 2019 amid election-related uncertainties. We expect the headline inflation rate to stay elevated, well above CBN’s single-digit target, but marginally below the current MPR of 14 per cent. We do not see a sharp depreciation of the naira, but we expect pressure to persist. However, Foreign Portfolio Investors (FPIs) are unlikely to return until after the election. We imagine that the MPC will continue to hold off any rate cut in H1-19, in view of elevated uncertainties in the polity. As such, aggressive liquidity mop-up will continue amid changes in global monetary conditions, expanded political spending, calls for a new minimum wage and higher inflation.

Looking back at the performance of the Nigerian capital market in 2018, are you surprised that the market could not sustain the 2017 growth?

Actually, I am not surprised. There were key factors that supported the performance of 2017 market position. For instance, the market was up 42 per cent in 2017, buoyed by positive sentiments linked to the exit of the Nigeria economy from 2016 recession, and expectations of even stronger growth in 2018. But the domestic economy performed below expectations in 2018, and other global developments steered foreign investors towards advanced economies more than emerging markets. Also, in the case of Nigeria, the build up towards 2019 election begun in the second half 2018, thus elevating socio-political risks and inducing bearish sentiments. The volatile oil sector, and the political terrain in Nigeria really affected the performance of the market. So, the underperformance of the equities market in 2018 compared to 2017 was unsurprising.

How do think the market will perform this year? Are you optimistic that we may see a recovery?
I am cautiously optimistic. For this year 2019, in terms of performance, there is likely to be some elevation in market performance perhaps in the second half the year when the elections-related political risks would have waned. On the global scene, risks of capital flight from emerging markets persist as some advanced economies raise interest rates, and this could subdue performance. However, the elections would come in the first half of the year and the euphoria will end in the first half of the year after which a rebound in market performance becomes more likely regardless of the political party that eventually becomes the ruling party.

In terms of recovery, we may not see strong recovery but a gradual one in 2019 which should build expectations for even stronger recovery by 2020 as the domestic economy slowly improves.
Despite the fact that equities market offers significantly high returns, some investors remain sceptical, what can be done to encourage improved investor participation?

The equities market is best suited for medium to long-term investors. It is not another gamble or bait. So, as new investors enter the market, continued investors’ education is key to sustaining interest. Investors will come to realise that it is not where 100 percent returns can be made in one day. It could happen, but not likely. But at least one should bear it in mind that it is a market for medium to long-term players. Careful planning and patience during periods of growth and volatility in the market are key qualities of savvy investors. To build a strong equity market involves both the regulator side and the investor side. Regulators need to put proper structure in place to deepen the market even in terms of even coming up with different products that investors can play in. On the investor side, investors’ education is key and this could be driven by both regulators and operators in the market. This market belongs to all of us and it has come to stay.

I know deepening the market ought to be a collectively responsibility but is United Capital Plc doing anything to contribute towards attracting more investors to the market?
Sincerely, we are doing a lot. United Capital has been in this space for a very long time. We have at different times, played our roles in supporting the regulator in deepening the market. We have participated in various investors education that is being orchestrated by the regulator. On our part, we have also centralised our investment platform and offer a wide bouquet of financial and investment solutions to our growing client base. We are also very active on the social media towards providing the public with information on investment education.

The primary issue segment of the equity market has remained relatively inactive for some time; how can this be revived?
Every market is a reflection of the economy and Nigeria is no exception. What you see in the primary market is a reflection of the position the country is in today and if there is no clemency in the economy, if the operating environment is not conducive, if there is no ease of doing business, if it takes a lot of time for offers to be approved, you will see that companies are not coming up to do business because the environment does not support their business. The fundamental way to boost primary market activities is to create a pro-business and stable economic environment for the private sector to thrive.

Once this has been done, the next is to ease listing requirements on the NSE. However, what we have seen over the last few years has been more of economic instability and recession with little or no reforms. However, some corporates were seen at the primary segment of the equity market in 2018, with the most recent being the recent initial public offering (IPO) by Skyway Aviation Handling Company Plc, to rights from May & Baker. There were more rights issues in 2017, close to N200 billion was raised by Larfarge, Guinness, UACN among others. What’s more, Lafarge Africa Plc is also raising another N90billion rights issue. Clearly, the ability of corporates in Nigeria to raise equity is not really a problem. The key issue remains the state of the economy as well as the socio-political environment which often drives or drags investor sentiment. Once these issues are addressed, I believe that the primary equity market would receive a new lease of life.

What do you think is responsible for increased corporate appetite for commercial papers?
Over 2018, the market saw a chunk of Commercial Paper (CPs) issuances by corporates such as Sterling Bank, Access, FSDH Merchant, Nigerian Breweries, Coronation Merchant and Dangote Cement, amongst others. I think the relatively lower yield environment and lesser participation by the FGN in the domestic debt market (which hitherto, crowded out access to the domestic debt market by corporates) was the primary factor behind the increased corporate participation.

The year 2018 was tough for companies and considering that fact United Capital Plc is player in the capital market environment, what should be the expectations of shareholders?
As a group, we are committed to regularly providing value to not just shareholders, but all our stakeholder groups. For shareholders particularly, we have taken this commitment very seriously over the past years. Despite the tough economic terrain, we have consistently provided value for shareholders. We expect to continue this trend this year and hopefully scale up in the coming years.

One of the targets of United Capital is to bring new products and innovations to drive your operations, how far have you gone in this direction?
Yes, indeed innovation is at the core of our existence as a corporate entity. The world around us is changing and we know that we must change with it if we must continue maintaining market leadership in all our areas of business. So, internally, we are doing a lot in terms of innovation, scoping the market for available opportunities and reviewing our existing offerings to see how we can serve our customers better. We hope to launch with some new products in the coming months.

United Capital Plc also planned to expand its operations to some African countries, what is the update on this?
Yes, we have always had Pan-Africa aspirations, but we are treading very carefully. We are closely monitoring our countries of interest and we will move when the time is right.
The company launched some funds in 2017, how are they doing in the market and should we expect more products from your stable?
Yes, we launched two mutual funds in 2017; the Eurobond Fund and the Women for Wealth Fund. Both funds have been very successful and well received by the market. The Wealth for Women Fund promotes the financial inclusion of the female gender by increasing their access to financial investment products and addressing the current imbalance of most investment products being skewed towards the male gender.

The Eurobond Fund is invested in Dollar denominated Eurobonds, floated by the Federal Government of Nigeria, as well as top-tier corporates. Subscribers receive competitive short to medium term capital appreciation on their dollar holdings invested in the Fund better than they would receive on domiciliary deposits. The Eurobond Fund has grown significantly since it was launched. In fact, in 2018, the size of the Fund more than doubled from about $3.6 million to over $8 million. We plan to launch more funds this year in sectors and segments where we see opportunities.