After an extended bear run that has seen the equity market shed over 10 per cent year-to-date, analysts at FSDH Research have said a rebound is in sight.
According to FSDH Research, Warren Buffett, a well-known American business magnate and stock investor, once said that as an investor, it is wise to “Be fearful when others are greedy and greedy when others are fearful.”
“This means that investors who have long-term funds can take advantage of the imbalance in the share prices of some companies that have strong investment case in the equity market. Although we may not know exactly when the equity market will take a turn, it is clear that the market is close to the bottom. Therefore, FSDH Research expects the bulls to take over from the bears very soon,” they said.
According to the analysts, imagine that an investment of N100,000 in the equity market in 1985 recorded a return of 24,590 as at December 2018.
“This means that the N100,000 increased to N24,690,000 within 33 years without an additional capital. This was the performance of the Nigerian Stock Exchange (NSE) All-Share Index (ASI) between 1985 and 2018. Not a bad growth at all. Meanwhile, there were some companies that recorded higher returns during this period than the NSE ASI. But be aware that historical performance is no guarantee for future performance in the financial market. The point that we are stressing is that investment in the equity market is for the long haul, especially at a time when activities are depressed and share prices are low,” they added.
FSDH added that the equities market may recover from August, saying that a number of companies have indicated that they will declare interim dividend for half year results only waiting for regulatory approvals.
“In addition, we expect the various monetary policies the Central Bank of Nigeria (CBN) initiated to boost economic activity and lead to increased liquidity that can flow to the financial market. This assumption is based on the availability of complementary fiscal measures that will de-risk the economy, the absence of which may limit the ability of the monetary policies to achieve the desired objectives.
“FSDH Research believes the current bearish trend in the equity market is an opportunity for strategic investors to take positions in the market. In addition to the capital gain that investors enjoy in the equity market, investors could also benefit from dividends that companies pay and the bonus issue (additional shares that investors earn, for which they do not pay),” the analysts said.
FSDH Research added that it expected the low yields on fixed income securities in Nigeria to provide an opportunity to source long-term debt capital for infrastructure development in Nigeria that will improve the Nigerian business environment.
Government and corporates can also leverage on the high appetite for debt securities to issue discount bonds. Meanwhile, we see attractive investment opportunities in the following sectors of the equity market: consumer goods, industrial goods, banking, and oil and gas,” FSDH stated.
The five-year exemption on brokerage commission and transactions fees charged by Securities and Exchange Commission(SEC), NSE and Central Securities Clearing System(CSCS) Plc the federal government gave in 2014, expired last Wednesday.
And the NSE had notified stockbrokers that effective Thursday July 25, 2019, the five per cent VAT would now be charged.
Owing to that, some investors had urged the government to extend the exemption. Lending their voices to earlier calls, the IBZSA members said the market was already saturated with various taxes and commission on transactions. IBZSA, in a statement signed by its chairman, Mr. Eric Akinduro and General Secretary, Mr. Ayoola Olufemi said the inclusion of VAT would further send negative signals to the investment community, leading to loss of shareholder value and discourage many investors from investing in the market.
“Recent statistics show that return on our investments has been discouraging vis-à-vis capital appreciation. In view of this and on behalf of the entire members of the IBZSA, we do hereby request that the Federal Government of Nigeria should extend the VAT exemption pending the time we have a robust economy,” they said.
According to them, the share
holders’ community was of the opinion that, the resumption of VAT charges in the market by the government portrays a bad policy for the growth of the Nigerian capital market considering persistent decline the market has witnessed in recent times.