Stocks to watch in capital market

CHRIS UGWU examines sectors that have strong potential to provide good returns for investors in 2022

The Nigerian stock market ended year 2021 on an impressive note as investors increased their buying pressure, especially on blue-chip stocks. Available statistics showed that activities on the Nigerian Exchange Limited (NGX), which opened the trading year at N21.058 trillion in market capitalisation and 40,270.72 index points at the beginning of trading on January 4, 2021, closed on December 31, 2021 at N22.296 trillion and 42,716.14 index points, hence has earned a year-todate gain of about N1.238 trillion or six per cent year-to-date.

Positive sentiments had returned to the local bourse as the gradual release of corporate earnings bolstered buying interests in dividend-paying stocks. This was further strengthened by the outcome of the MPC meeting, which reinforced the theme of “lower for longer” yields in the FI market. Market analysts believe that the renewed sentiments in the local bourse market also grew following crave to increase capital gains on the back of low prices of stocks owing to upset in the financial market from the widespread pandemic and sharp drop in oil price.

However, following the impressive performance of the local bourse, the year 2022 is expected to be attractive for the equities market as most of the stocks are still undervalued. Factors that’ll shape the market Some capital market operators have listed events that will shape the stock market and the economy in 2022. According to them, both the market and the economy would be impacted by the Monetary Policy Committee, 2022 Budget implementation and consumer price index, among others. Mr Ambrose Omordion, Chief Operating Officer, InvestData Ltd., said budget implementation, economic data, political activities and fuel subsidy removal would determine activities in the coming year. He added that OPEC meetings, December year-end corporate earnings, interest rate and industrial output would also shape economic activities in the year.

Omordion listed agriculture, financial services, telecommunications, manufacturing, industrial goods and healthcare as sectors that would drive the growth of the stock market in 2022, going by their contributions to GDP. He added that there would be more opportunities for financial services, especially banks expected to take advantage of the free trade zone agreement. “The telecommunication companies, especially MTNN and Airtel increasing cash flow as a result of on-going digital economy drive, payment service bank licence and others will boost performance in the new year,” Omordion said. He explained that the removal of fuel subsidy and restructuring of the sector with the PIB in operation would open new business opportunities in the industry.

Omordion, however, said the outlook for the stock market and the economy in 2022 remained mixed and dicey being a pre-election year with expectations of change in the economic policies of government. Also speaking, Mr Rotimi Olubi, the Managing Director, Morgan Capital Securities Ltd., said the performance of the stock market in 2022 would be characterised by several factors.

Olubi said the introduction of IFRS 17 for insurance companies would impact reporting of insurance companies’ contracts. He added that full deregulation of the oil and gas sector would lead to an increase in the pump price of petrol and the ripple effect would lead to inflation. According to him, recapitalisation of insurance and pension firms will lead to a lot mergers and acquisitions as well as possible hostile takeovers in 2022.

Stocks to watch

On sectors to watch out for in 2022, Mr. Mike Eze, Managing Director, Crane Securities Limited, said that financial, consumer goods, building materials, telecomms/ ICT would be the most sought by investors. “The financial sector is more marketable, consistent in dividend payout and if the economy finds its feet in 2021, the banks will benefit more,” Eze said. He noted that despite the impressive performance in 2020, low price of stocks would make the local bourse attractive.

Oluwaseun Agbejimi, AVP/ COO, TradeFi at Comercio Partners Asset Management, explained that this year would provide good entry points for both local and foreign investors, given how a lot of investment instruments 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) licence.

“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. “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 safehaven investment options for riskaverse investors,” Agbejimi said. Thelma Ugonna Ohiri-Anyanwu, CFA Management Associate at First Bank of Nigeria, said the world had experienced three waves of the COVID-19 virus and the impact on global economies cannot be overemphasized. With the possibility of a fourth 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,” Ohiri-Anyanwu said. Victor Ofili, Head of Research at Cowry Asset Management Limited, said as part of investment strategy in the equities market for year 2022, Cowry Research expected 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 per cent, 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 optimise 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,” he said. Mosope Arubayi, SSA Economist (West & Southern Africa) & Market Strategist at IC Group, noted that 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 fixedincome 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 longterm 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 dollardenominated 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 allout 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,” Arubayi said.

Last line

Difficult choices lie ahead for investors, consumers, fiscal and monetary policy makers and other stakeholders in the Nigerian economy, however, the picks are promising.




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