Olumide AdesinaThe Nigerian economy is estimated to grow by 1.5% in 2021 and 2.9% in 2022, according to data retrieved from the African Development Bank. This is due to a recovery in crude oil prices and production.
By reopening borders, inputs will become more accessible, which should ease the pressure on domestic prices and inflation. In addition to the devaluation of the naira, discounted equity prices (all likely to be temporary), many Nigerian businesses and assets are looking pretty undervalued at least when compared to their African contemporaries.
Thus, selected experts have provided Nairametrics with their views on financial assets that show good fundamentals for 2022.
Oluwaseun Agbejimi, AVP/COO, TradeFi at Comercio Partners Asset Management
Next year will provide good entry points for both local and foreign investors, given how a lot of investment instruments under our universe are currently undervalued.
From local equities, it will most likely favour, Zenith Bank and MTNN among others. Zenith Bank because of its solid fundamentals and its consistent dividend payout and high dividend yield which remain very attractive for investors. While for MTNN, the outlook for revenue growth and profit remains positive, even without a Payment Service Bank (PSB) license.
For the fixed income space, we expect yields (returns) to be more attractive given the expected borrowing of N6 trillion to fund the 2022 budget coupled with constant unorthodox Cash Reserve Ratio (CRR) debit by the apex bank.
On the foreign side, tapering coupled with the reversal in global dovish stance should further weaken market sentiment, creating a good opportunity for SSA Eurobond. We expect double-digit yields in Nigeria, Ghana and Angola Eurobonds. A double-digit return on a dollar investment is definitely a good bargain.
Investors risk appetite is also a determinant as we have some players that place premium on safety of their investments over returns. As we all know that the higher the risk, the higher the returns. If your risk appetite is medium to low, the fixed income market could be considered as a good option for you, while the big lions and risk-takers can play in the equities space and the likes.
However, the Federal Government Securities are regarded as safe-haven investment options for risk-averse investors
Thelma Ugonna Ohiri-Anyanwu, CFA Management Associate at First Bank of Nigeria
The world has experienced 3 waves of the Covid-19 virus and the impact on global economies cannot be overemphasized. With the possibility of a 4th wave, if mutations continue, increases in commodity prices and high inflationary pressures, 2022 will be a year of moving from recovery to resilience.
In 2022, I will be looking out for investments that would provide positive real income, provide stability, grow my funds and add value; hence I am looking to invest in direct agriculture, digital currency, dollar funds/Eurobonds, value stocks and explore real estate investments through investment in shortlets and leasing opportunities. Above all, I plan to invest in myself by acquiring some identified skills.
Victor Ofili, Head of Research at Cowry Asset Management Limited
As part of investment strategy in the equities market for the year 2022, Cowry Research expects investors to keep track and position in companies that have recently recovered from a low base revenue stream and have also boosted profitability, especially in 9M 2021.
We note that the share prices of this set of companies would become more attractive in the first quarter of 2022 as they are likely to offer increased dividend payout to those invested in them. This strategy is expected to speedily reward investors in the earliest possible period between December 2021 and March 2022.
Also, we expect medium to long term investors to bargain hunt for undervalued stocks; particularly of those companies that have their share prices trading below their book value per share and have recorded higher profitability with a declining leverage ratio. Also, this set of investors should put their monies in dividend-paying stocks, especially those with dividend yield that is above 10%, and are likely to increase their dividend payout.
Specifically, long-term investors should target second quarter of 2022 to buy the anticipated dip – this would enable them position at a comfortable support price level that comes along with higher dividend yield.
In order to optimize returns on investment, we feel that investors’ attention should be concentrated more on the sectors we highlighted above as they are well-positioned for higher revenue and profitability in 2022.
Mosope Arubayi, SSA Economist (West & Southern Africa) & Market Strategist at IC Group
The first order of business in 2022 is to protect your portfolio from inflation, if you have not already done so, as inflation is likely to remain above recent historical norms. In times like this, commodities provide an effective hedge.
Therefore, investors may want to reduce their traditional fixed-income allocations and increase their exposure to real assets. Oil and gold will be key markets to look at. Thanks to their growth potential, stocks are a decent long-term shield against inflation erosion – especially if you zero in on companies with pricing power.
I expect interest rates to rise modestly in 2022 from current low levels. Rising rates can lead to low or potentially negative returns for fixed income, also leading me to favour equities over bonds.
I see opportunities in dollar-denominated assets over those denominated in local EM currencies. EMs seem primed for growth, but the old challenges remain, while new ones have surfaced. Therefore, it is too early to be all-out bullish on EMs as headwinds from energy prices, regulation and COVID remain. Local EM debt may be looking attractive at this point, but with some patience, you can get better entry points next year – with the continued US Fed taper, the anticipated rise in global long-term interest rates and its attendant support of a stronger dollar that is negative for EM asset returns. So, be modest in your EM returns expectations for 2022.
Another unstoppable trend – a carryover from 2021 – is investing in financial technology (FinTech). During the pandemic, banking customers were nudged in the direction of completing transaction online or via mobile devices. But even before the pandemic, a predominantly younger generation of consumers relied on mobile devices to pay for goods and services, transfer money, and trade stocks and cryptocurrencies. That trend is likely to continue in 2022.
Adaobi (Eziokwu) Okonkwo, Treasury Senior Associate Leatherback
Reeling in the aftermath of the pandemic, 2021 has seen a lot of economies battle with high levels of inflation. Nigeria is not left out, with the naira (official rate) depreciating over 3% (Dec 2020; 400.13, Dec 2021: 414.13) (FMDQ) while the parallel market has seen over 20% depreciation over the last 12 months (Dec 2020; 470, Dec 2021; 560).
It is safe to say that any investments made in Naira in the last year would need to yield more than the inflation rate (15.4%, CBN) for one to earn profitably.
Uncertainty as we round off 2021, with the new COVID Omicron strain could mean choppy economic activity globally. For Nigerians, investing in dollar-denominated assets ensures that their investment is not making them worse off.
It could range from having a dollar deposit account (yielding at least 5% p.a.) for more risk-averse investors, to investing in the equities market and the crypto market for the more risk-loving investors.
Top picks for investing in the US equities market; Telecommunications (e.g. Twilio), Fintech companies (So-Fi Technologies, Upstart) and the more popular ones like Apple, Amazon, Netflix.
Key to staying safe and profitable is a diversified portfolio. Invest a decent proportion of your earnings locally in liquid investments (T-bills, commercial papers, money market fund) as cash is King, especially in an uncertain economy.
Nathaniel Saleh, Structured Finance Analyst at Link Group
For my investment pick into 2022, I decided to shift focus towards some of my overlooked pick from Q3 2021 with PubMatic and Meta leading the way.
- PubMatic ($PBM)
PubMatic is an advertising company that connects publishers with advertisers to enable them find the space needed to market their products, with publishers earning revenue by marketing these products through the respective platforms.
Yahoo finance is labelling the stock as undervalued, trading at $37.69 per share, PubMatic specifically reported a year over year revenue growth of 54%, a year over year net income growth of 117%, and a year over year adjusted EBITDA growth of 81% and saw a total of 60,000+ advertisers placing ADs on the platform.
I think that this company has already showcased strength and competitive advantage within less than a year since its IPO. This should be a company that you keep on your watch list.
- Meta ($FB)
Meta formerly known as Facebook Inc is an American conglomerate primarily known for its Facebook social media platform and is also the parent company of Instagram and WhatsApp. So, right now one share of Meta is turning at $333.12 with a 52-week low of $244.61 and a 52-week high of $384.33, the company recorded substantial growth in the last year starting from about $275 one year ago gradually going all the way up to above $375.
The average analyst price target is $401.93 which is about 20% higher than the current price of $333.12.
Despite its relatively strong position over other tech companies Meta continues to grow at a remarkable rate. In its most recent earnings call back in September of this year, the company reported earnings of $29 billion for the quarter which was a 35% year over year increase.
Bottomline
In spite of the difficulty in identifying trends, in Africa’s largest economy, Nigeria, dollar-denominated assets seem to be a viable investment destination and the time to act has come.
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