The overall investment environment in the second half (H2), 2024, has been projected to remain volatile, uncertain and complex, even as the challenging business environment stemming from high interest rates, foreign exchange crisis and high cost of energy is expected to continue to pose a drag on output growth rate.
A professor of capital market at the Nasarawa State University, Uche Uwaleke, while delivering a paper titled: ‘The Nigerian Economy and Capital Market Outlook for H2 2024’ at the ASAM Quarterly Webinar, pointed out that the negative effect of the challenging domestic environment would be made more apparent in the manufacturing and agriculture sectors where growth rates have already begun to tank.
Against this backdrop, he stated companies in the agriculture, industrial and consumer goods sectors may record depreciation in their share prices in H2 2024 while maintaining that the financial markets will be characterised by uncertainty, especially from fiscal surprises.
He stressed the need for investors to adopt diversification, hedging and long-term perspective to investment.
Uwaleke projected that the naira would stabilise at the current level below N1,500/$ in H2 following accretion to external reserves on account of foreign loans already secured and the plan to issue Eurobonds before the end of the year.
He said that the Central Bank of Nigeria (CBN) forex market reforms, including the increase in minimum capital requirement for BDCs are expected to help sanitise the BDC segment of the market.
He pointed out that a strong appreciation of the Naira in H2 2024 may not be realised due to several factors including low oil receipts owing to NNPC’s crude for dollar loans and speculative activities in the Foreign exchange (FX) market on account of elevated inflation.
According to him, headline inflation will remain elevated between 28 per cent to 30 per cent due to high energy costs, limited domestic food production, pass-through effects of naira depreciation, transport challenges, insecurity, flooding and the impact of upward minimum wage adjustment.
In addition, Uwaleke stated that stubborn inflation, high exchange rate challenge, unprecedented hikes in the MPR and increase in CRR in H1 2024, which have raised the cost of funds for businesses and reduced access to credit, which would propel a high interest rate environment in H2 2024.
On the capital market, the university don argued that increased Federal Government (FG) borrowing from the domestic capital market at high-interest costs will continue to make FG bonds attractive to investors relative to equities given their low risk of sovereign instruments, just as elevated interest rates continue to make money market securities attractive, especially TBs and commercial papers.
Uwaleke suggested that investors should diversify portfolios by focusing on stocks with good fundamentals and track records of dividend payments and hedge risks by investing in fixed income, dollar-denominated assets, commodities and other asset classes (also a form of diversification).
He further stated that H2 is a good period to invest in the Nigerian stock market, but added that investors should continuously monitor, and revise portfolios in line with economic conditions and develop the capacity to identify early warning signals when investing in stocks in a volatile, uncertain and complex environment.