Low share prices and steady corporate earnings have increased potential returns on investments for investors in Nigerian equities.
Investment Banking Group-FSDH Merchant Bank, in its latest report, stated that the dividend yield in the market has increased due to low prices.
According to the report, low share prices are attractive for investors wanting to take positions in the market on a long-term basis.
“During the holding period of stocks, investors will earn attractive dividend yield, bonus where declared and have the opportunity to receive the benefits of capital appreciation,” FSDH stated.
FSDH noted that there are investment opportunities in the Nigerian equity market for long-term investors despite Nigerian equities’ year-to-date weak performance. Nigerian equities opened yesterday with a negative average year-to-date return of -7.67 per cent.
Analysts noted that the weak performance of the equity market so far in 2018 was due mainly to the pullback of some foreign investors from the market due to uncertainty ahead of next year’s general elections and the rising global yields which are leading to reallocation of portfolio funds away from the equity market.
“Meanwhile, the equity market is already showing signs of oversold position. This means that a reversal in the market is imminent. The Relative Strength Index (RSI) on the equity market is showing signs of oversold position. The expectation of higher crude oil prices on the international market in the short-term and crude oil production in Nigeria are positive drivers of the equity market,” FSDH stated.
The average price of Bonny Light crude oil so far in 2018 is higher than the 2018 budget benchmark of $51 per barrel. According to data from Thomson Reuters, the Bonny Light crude oil price increased by 5.56 per cent to $71.20 per barrel as at August 17, 2018, compared with the price by the end of last December. The average price of Bonny Light during this same period was $72.46 per barrel.
FSDH noted that the oil price, at around $70 per barrel b, should increase crude oil revenue for Nigeria, which should continue to support a stable exchange rate in the short term, thus reducing the exchange rate risk to a large extent.