The events of the past quarter compounded by the global CoronaVirus (COVID-19) crisis and its massive impact on financial markets in the short to medium term brings a feeling of déjà vu. To reduce the spread of the virus, nations have restricted trade, travel, and in extreme cases closed their borders. Amidst all this, an oil price war between Saudi Arabia and Russia has pushed the price of crude oil below $35 per barrel.
These two factors have had an adverse impact on global economies; with governments around the world including the Nigerian government, responding with the introduction of stimulus packages to keep their economies from slipping into recession.
Despite any negative sentiments attached to current events, it is worthy of note that markets have a good record of overcoming global economic shocks as seen below:
From our experience, our conclusion is that it remains profitable to invest in financial markets with a long-term view.
The graph below shows the performance of the Nigerian Stock Exchange (NSE) All-Share Index from 2010 to date. Whilst the asset class has under-performed over short periods, we caution investors not to write off this asset class as the volatility creates opportunities for strong positive performance over the long-term. Investors have also profited by applying rigorous research in stock selection and by maintaining a disciplined investment process. Similarly, investing in fixed income securities over the medium term has provided a good hedge against inflation as the Federal Government securities over the last 5 years delivered average annual returns of 19%, well in excess of inflation.
For investors with an above-average risk appetite, there are opportunities in specific sectors of the economy such as Telecoms, where companies earning capacity will not be significantly impacted by current events and Consumer Goods where there are companies that have the ability to withstand market shocks. Furthermore, asset prices have declined significantly to record low levels, creating compelling entry prices as new year lows are redefined. Dividend yields remain attractive across a number of companies that have maintained strong fundamentals. (e.g. Tier-1 banking names such as Zenith Bank and Guaranty Trust Bank).
For investors with lower risk appetite, we would advise on a re-allocation from risky assets to money market- based investments (such ARM Money Market Fund) because of their potential for steady and competitive returns in the short term.
Although we should expect substantial market volatility in the short term, investors who are able to maintain discipline and take a longer-term horizon to invest would make it through the down cycle to enjoy the benefits of an inevitable rebound.
Our customer experience team is available to guide you through appropriate investment decisions suitable to your needs. We remain focused on navigating the market environment, with the aim to keep your investment on track toward reaching your long-term investment goals.
Please maintain all the rules of safety in this period, we wish you good health.
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