- Tasks Investors on Short-term, Fixed Securities
The Chief Executive Officer (CEO) of Cowry Assets Management Limited, Johnson Chukwu, has faulted the projected 5.4 per cent contraction in the Nigerian economy by the International Monetary Fund (IMF) for 2020.
He said considerations were “apparently” not given to the contributions of Agriculture and ICT – the sectors that yield significant boost to the GDP.
Mr Chukwu said this at a webinar session on review of first half and outlook for second half of 2020 organised by the company in Lagos.
Noting that COVID-19 pandemic has global negative impact, Chukwu stressed that the effect would not result in a steep 5.4 per cent contraction of Nigeria’s economy as projected by IMF.
He, however, maintained that the negative impact on Nigeria would be between 2 per cent and 3 per cent in 2020 adding, however, that the Oil & Gas, Trade and Manufacturing sectors were expected to contract in H2 2020.
“While we agree that the Nigerian economy will contract in 2020, we however believe that the contraction will not be as steep as the 5.4 per cent projected by IMF.
“We expect the Agriculture sector which accounts for about 22 per cent of the GDP to remain resilient due principally to favourable weather conditions this year.
“This is in spite of setbacks from highlighted insecurity in the Northern parts of the country.
“The ICT sector accounts for 14 per cent of the GDP and is expected to maintain its growth momentum in the remaining quarters of the year.
“The Oil & Gas, Trade and Manufacturing sectors are however expected to contract in H2 2020.
“In summary, robust grow in Agriculture and ICT, which combined account for 36 per cent of the GDP will have the effect of cushioning the rate of economic contraction in 2020.
“We therefore project an economic contraction of 2 per cent – 3 per cent”, Chukwu said.
In his presentation entitled, ‘H1 2020 review; Expectations and investment strategies in H2 2020’, Chukwu said returns-hunters should consider investing in short-term bonds and fixed deposit instruments.
He said this would lead to benefitting from the expected upward shift in the yield curve that low-yield environment would create.
“We favour investing in the short-term bonds and in fixed deposits to retain the ability to benefit from the expected upward shift in the yield curve.
“We may see new corporate bond issues as firms look to take advantage to the low yield environment.
“Focus on Investment grade Instruments with adequate risk premium,” the investment expert said.
Chukwu urged attention to fundamentally strong companies with low Price-Earning results and high dividend yield linked to historically high Return on Equity; this include sectors less impacted by the COVID-19 pandemic.
“We advise focus on fundamentally strong companies with low P/E, high dividend yield and historically high Return on Equity (ROE).
“Sectors less impacted by the pandemic – ICT, healthcare, financial services and agriculture may offer additional value,” Chukwu stated.
Noting that the IMF had predicted 4.9 per cent decline in global output, Chukwu said his investment firm projects gradual recovery from recession amid early expansionary programmes and policies by fiscal and monetary authorities.
He said this should stimulate consumer demand, spending and hiring by businesses and resumption of global trade.
According to him, recovery in crude oil price storage between USD40 and USD50 per barrel amid supply cut and increasing demand, as the United States, China and the Eurozone, resume economic activities will quicken growth.
On expected fiscal and monetary policy response to various economic developments, Chukwu predicts a regime of low interest rates that would stimulate credit expansion to the private sector adding, however, that weak economic recovery could pose some constraint.
“Low interest rate regime is expected to stimulate credit expansion to the private sector.
“This may however be constrained by limited number of quality credit demands occasioned by weak economic recovery,” the CEO said.
Chukwu predicts weak consumer demand in H2 2020 due to increase in unemployment, reduced salaries and limited fiscal capacity of the Federal, state and local governments.
He said inflation rate would trend further north by depreciating local currency, increasing cost-effective fuel prices (petrol), electricity tariff, transport and food costs.
Amid the current market uncertainty, Chukwu cautioned against high risk investment windows such as crypto currencies, agricultural funds and ambitious forex tradings.
We expect “CBN to retain OMO yield at a relatively high rate in order to attract foreign portfolio investors.
“So far, CBN has maintained relatively high OMO yield environment (341-DAY OMO bills traded at 9.81% as at June18, 2020); an upward shift in the yield curve may be seen in Q4” Chukwu further stated.