By Taofik Salako, Deputy Group Business Editor
Meristem Securities has advised investors to be cautious and invest in securities with strong fundamentals to withstand global economic shocks and the impact of the Coronavirus on the economy.
Meristem affirmed that notwithstanding the challenging outlook due to the Covid-19 pandemic and the fragile nature of the economy, there are still pockets of strategic opportunities for investors who are looking to invest in the Nigerian capital market and economy.
Meristem stated that it has continued to offer professional guidance to investors seeking opportunities amidst the global economic uncertainty and the Covid-19 pandemic noting that its professional insights are aimed at supporting investors who are willing to preserve their assets and manage their portfolio exposures, as economic shocks ravage the investment climate.
According to the company, Coronavirus pandemic has caused slowdown in economic activities as a result of strict guidelines of social distancing and in some cases partial and complete lockdown of some states in the federation.
These guidelines have further compounded preexisting growth challenges in the domestic front like the crash in oil prices, which contributes a significant amount to government revenues and the nation’s foreign exchange reserves.
The International Monetary Fund (IMF) recently announced that the global economy is in a recession which is at least of the magnitude as the 2009 economic crisis, with a predicted recovery next year.
Managing Director, Meristem Wealth Management, Sulaiman Adedokun, noted that since the official exit of Nigeria from a recession in second quarter of 2017, the Nigerian economy has consistently recorded slow growth below three per cent in real Gross Domestic Product (GDP), much below the pre-recession levels of three to five per cent.
According to him, although non-oil sectors such as telecommunications, agriculture and manufacturing have supported real GDP growth, the oil sector continues to be a key determinant of the overall growth of the economy.
He pointed out that the crash in oil prices from an average $67.31 per barrel in December 2019 to $32.98 per barrel last month is expected to have far-reaching consequences for economic growth given the contribution of the oil sector to government revenues and foreign exchange reserves.
“The banking sector is more resilient than previous years, the consumer goods industry is going to be guided by demand for essential items during this time, the recapitalisation of the insurance industry is expected to continue amid the crisis and we see growth in the telecommunications sector due to demand for voice and data services as most businesses now work remotely,” Adedokun said on the outlook for various sectors.
Head, Wealth Management, Meristem, Damilola Hassan added that though the overall outlook for the financial market is still clouded with uncertainties at this moment, fixed income securities may provide safer investment opportunities for investors given the volatility that exists in the equities space and the accompanying risk of capital loss associated with such investments.
She, however, pointed out that there are certain equity products that can help to diversify and broaden investors’ portfolio exposures including the recently introduced Meristem Value and Growth Exchange Traded Fund.
“Coupled with the aforementioned, we expect the downward review of Nigeria’s sovereign rating outlook by global rating agencies and the elevated risk environment to lead to an upward repricing of yields in the fixed income space.
We also recommend investments in dollar-denominated fixed income instruments as a means of hedging against foreign exchange risks,” Hassan said.
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