Elvis Otunta is the Managing Director, Norrenberger Securities Limited. In this interview with OLAWUNMI OJO, he speaks on how the equities market has been witnessing a boom since the administration of President Bola Tinubu began, stresses the expediency of some of his economic reforms and suggests some survival strategies for individuals and businesses in the aftermath of tough economic decisions being taken by government.
There has been sustained boom in the equities market since President Bola Tinubu took the reins. What is driving the boom?
The market is largely information-driven, which suggests that positive or pro-market information will most likely cause a positive reaction by investors and vice versa. However, the current bullish momentum being experienced in the market can be attributed to some pro-market pronouncements that were made by the current President upon assumption of office such as the petrol subsidy removal, floating of the exchange rate, and the decreasing interest rate regime in the money market.
The pronouncement on the unification of the exchange rates resulting from the floating of the Naira is particularly critical to attracting Foreign Portfolio Investors (FPIs) to our market, as they constitute a significant part of liquidity injection to the market, which drives demand and consequently stock prices.
Considering the ongoing economic reforms, how should investors take a position in the market?
Several stocks in different sectors of the market in the last year and in the months leading up to the general elections in February this year had been trading below their fair values. Despite the recent rally in the market, some stocks are still undervalued and potentially have a decent upward potential. Therefore, investors should look to taking a position now on especially fundamentally sound stocks with attractive dividend yields and upward potentials for capital appreciation.
Other factors to consider in position-taking are investing in companies within critical sectors of the economy that would benefit from government policies such as banking, petroleum (especially downstream subsector), agricultural, technological, and construction sectors.
How can investors benefit from investing in the equities market?
Investors coming to the market must be very clear about their investment objectives and goals. They need to form a strategy for attaining these goals and be dynamic when the fundamentals of these strategies change. A very important point to consider is that the stock market is a long-term market. As such, investors should match long-term funds with long-term instruments. Investing short-term funds in the long-term market could lead to undue pressure, which in turn could cause such investors to exit their positions regardless of whether their position is profitable or not.
Investors can benefit from the equities market in different ways such as earning dividends, capital appreciation, bonus issues, and a combination of all of the above. To benefit from the aforementioned, invest in stocks with good financials, history of dividend payment, and timing of investing i.e. buying fundamentally sound stocks when others are staying off it (bucking the trend), setting target prices or benchmark returns, and exiting positions when such targets are met. Finally, avoid greed by all means.
How has the unified exchange rate impacted the equities market so far?
This policy pronouncement has had a positive impact on the equities market as it reassures Foreign Portfolio Investors that should they inflow their funds to Nigeria at a certain rate. They can also repatriate the funds back to their home country at a market-determined rate as against the managed exchange rate of the past. This is a confidence booster for these FPIs who hitherto had stayed off our market but could trickle back in and therefore provide liquidity for our market.
Foreign investors’ appetite is growing, and their confidence is building. How can the government sustain this?
The policy on floating the currency needs to be sustained, better transparency in that sector is also needed. The government also has to boost its foreign reserves with productive ventures as well as blockage of leakages in the oil sector, which accounts for a major part of the country’s foreign exchange earnings. Diversification of the economy to other sectors than petroleum would also help the country earn more foreign exchange and consequently boost our reserves.
Why should potential investors sign up with Norrenberger Securities Limited?
At Norrenberger Securities Limited, we pride ourselves as simplifiers of wealth creation, a philosophy that is shared across the Norrenberger Financial Group. Our human capital is our most priced asset as we are deliberate in attracting the best talents in the market to help build an institution that is poised to add value to our clients and the investing public. We leverage technology and sound research in engaging with our clients.
Trading of stocks eases challenges investors have. How can this be made seamless?
With rising inflation numbers, most investors seek investment classes that could give returns that minimise or eliminate the impact of inflation on their funds. Trading in stocks can help achieve this goal. At Norrenberger Securities Limited, clients can trade in the market directly on their own with the help of our Norren Trade platform. We continually seek innovative ways to ensure that very complex financial products and services are simplified to the level of the not-too-savvy investor.
How would you access the economy today, bearing in mind the unification of exchange rate, fuel subsidy removal, and decreasing interest rate at the money market?
The state of the economy in the past two months has been a mixed bag of pains and gains in different quarters. The markets have seen investors make significant gains as some stocks appreciated for as much as 60% in their share prices. The stock market has seen investors hedge against inflation, as returns on their investments have exceeded the current inflation rate.
However, the flip side to this is the high cost of living that the removal of petrol subsidy has led to. The impact of this on businesses is that to maintain your labour force, a pay raise would be appropriate at this time, which in turn would lead to an increase in overheads. Businesses in turn would pass some of these increased operating costs to the final consumer, thereby reducing their purchasing power and increasing the misery index of the average Nigerian.
Nigerians are groaning under the subsidy removal while businesses are lamenting overheads, among other effects. How do you think government can quickly turn this around?
There is no quick fix to the current economic challenges facing the nation today as there have been a lot of legacy issues that needed to be addressed. The government would have to lead from the front so it makes sense to the citizenry when the government says we should tighten our belts.
