BusinessDay 26 Feb 2018

28 BUSINESS DAY C002D5556 Monday 26 February 2018
INTERVIEW
The 2019 election presents opportunities to
take a look at​assets with good valuations
Nigeria exited its first full-year economic recession in a quarter of a century in the second quarter of 2017, with the IMF and World Bank forecasting
growth of around 2 percent this year. IKE ONYIA, the chief executive officer of Lagos-based FBNQuest Asset Management, in this interview with
BusinessDay’s PATRICK ATUANYA, LOLADE AKINMURELE and DIPO OLADEHINDE, shared his views on investment opportunities in Nigeria post-recession.
What investment
opportunities
are emerging in
Nigeria, post-recession?
Last year, Nigeria provided investors
with relatively strong returns
across money, fixed-income and
public equity markets. Post-recession
and with improving economic
fundamentals driven by
oil prices, stable output, growing
foreign currency reserves and appropriate
policies, we anticipate
that businesses in Nigeria will do
much better. With inflation trending
downwards, money market
and fixed income securities may
provide short to medium-term
investor’s with real rates of return.
Long-term investors, with varying
degrees of risk tolerance, will find
viable investment opportunities
in both public and private equity
markets. The key consideration
for investors after risk, will be the
adoption of a suitable asset allocation
strategy, which if optimal, will
take advantage of investment opportunities
across several sectors
in Nigeria. Are there alternatives
to Treasury Bills as yields slide?
Treasury Bills are short-term
money market securities with
maturities of one year or less and
are suitable for investors seeking
liquidity and capital preservation
objectives. Investors with these
objectives should still consider
exposure to treasury bills an appropriate
strategy, in spite of a
decline in yields from between
18 per cent and 22 per cent last
year to between 12 per cent and
15 per cent, thus far, in 2018. It
might be inaccurate to develop
expectations around an absolute
number and seek a perfect substitute
with the same level risk
tolerance threshold. Indeed, while
yields looked attractive on the face
of it, when you factor in average
inflation of approximately 17 per
cent in 2017, the real rate of return
was between 1 per cent and 5 per
cent. So last year’s yields may look
attractive on an absolute basis,
but much less so when adjusted
for inflation. Investors can consider
other opportunities within
money markets include Bankers
Acceptances and Commercial
Paper but those with higher risk
appetite and longer investment
horizons may consider additional
exposure to other asset classes
such as bonds and public equities.
In 2017, a portfolio diversified
across money market, bonds and
equity securities will have outperformed
yields achieved from
a money market only portfolio. In
other words, investors should still
consider including treasury bills in
their portfolio but seek alternatives
for higher yields through a carefully
advised allocation strategy to
include other asset classes. Stocks
have rallied to a near 3-year high,
do you expect the bullish momentum
to be sustained especially on
the back of impending elections?
The NSE All-Shares Index
achieved strong growth of 43 per
cent in 2017, making it one of the
top three performing stock mar-
Ike Onyia
kets in the world. This growth was
spurred by rising commodity prices
and the introduction of the Investors
and Exporters (I&E) window by
the Central Bank of Nigeria, which
ensured foreign exchange stability
and liquidity. Oil price trends and
Nigeria’s economy are closely correlated
and at the moment, prices
and output are relatively stable.
Following five quarters of negative
growth, Nigeria has just exited a
recession and is expected to grow
at more than twice its growth rate in
2017. Also, tight liquidity management
and stable foreign currency
markets have led to a decline in
inflation and interest rates. All of
these elements and more, support
positive growth for businesses and
the stock market over the course of
2018, however, valuations are high
following the bull run in 2017 and
investors have to be selective and
cautious in constructing their equities
portfolio. What does the impending
election hold for investors?
Since 1999, Nigeria has witnessed
four election cycles and
as is usually the case, politics
takes centre stage. Investors with
a long-term mind set and appetite
for exposure to one of the largest
economies in Africa should stay the
course. Indeed, while the run-up to
the election will lead some investor
segments to exercise caution, this
could in itself present others with
the opportunity to pick up investment
assets at good valuations.
How has the Investors and
Exporters (I&E) window affected
or had an impact on you?
The I & E window effect was
positive and provided liquidity in
the foreign currency market, which
in turn spurred investment activity
in stocks, amongst others.
How are your funds performing?
Across board all our funds performed
strongly and clients were
well served as a result of our investment
strategies, which outperformed
relevant benchmark
indices. Our FBN Money Market
Fund achieved returns in excess of
17 per cent the FBN Fixed Income
Fund achieved 19.14 per cent while
the FBN Eurobond (USD) Fund
achieved in US$ returns of 12.17
percent,.
​​The funds’ performance is down
to our strong and highly experienced
investment management
and research team.
Expectation for 2018?
With a fairly stable forecast oil
price trading range, the macroeconomic
story will be positive
and we should witness strong
growth relative to the recessionary
environment that just passed. As
expected, there will be a surge in
political activities, which will most
certainly attract a lot of attention.
However, financial markets will
present viable investment opportunities
for consideration. In money
markets, yields are expected to be
less than last year as the Federal
Government refinances its local
debt book. The public equity market
may witness a correction given
current valuations of select stocks
but will most likely end the year
positive. Private equity markets
continue to provide a pipeline of
interesting value propositions focused
on several sectors including
consumer, financial services, agribusiness,
broad-based technology,
education, healthcare and more
evident in the number of successful
capital raises and exits.
Forecast for 2018?
IMF and World Bank forecast
growth in Africa at over 3 per cent
and over 2 per cent for Nigeria..
FBNQuest Capital Research has
forecast a growth of 2 per cent in
2018, which is over double the pace
of growth of 0.8 per cent in 2017.
In 2018, I think that we will
see improved growth over 2017,
although it will be fragile.