Nigeria attractive for investment despite security risks-FSDH

By NKIRUKA NNOROM

Despite dangers posed by the present security challenges in the country, especially from the Boko Haram sect in the Northern part of the country, there still exists unequaled opportunities in the nation’s investment climate.

This was the submission of analysts from an independent research firm, First Securities Discount House (FSDH) in their review of the economy and financial sector for 2011 and prognosis into 2012, titled ‘Growing Opportunities Amidst Challenges.’

The report stated that at 16 per cent yields to maturity on most of the bonds, in an environment where inflation forecast is in the region of 12 per cent, it was a ‘real’ return on investments.

Besides, it emphasized that presently, the yields on one year Treasury bill stood at 20 per cent, while returns on medium term portfolio investment in the equity market was around 19.87 per cent.

According to the report, investments in the capital market in 2012 will favour securities in four major asset classes including equities, treasury bills, bonds and fund placement.

“Looking at the outlook for 2012, we are recommending a portfolio allocation of 30 per cent, 10 per cent, 30 per cent and 30 per cent in favour of equities, fund placement, treasury bills and bonds, respectively. Taking into consideration the expected returns from these asset classes, we expect a portfolio return of 18.21 per cent in 2012, all things being equal,” it sated

The report identified other events that will favour investment in country in the course of the year to include short-term high yields on fixed income securities brought about by efforts of the Central Bank of Nigeria (CBN) to correct the dislocation in the price stability, adding that it was a good deal for risk averse investors.

Others are: attractive dividend yields on dividend paying stocks in the market; exceptional room for capital appreciation in the equities market as prices are at rock-bottom levels, the huge investment opportunities in the oil and gas industry in form of Foreign Direct Investment (FDI) and enormous opportunities inherent in the country due to efforts of the current government to correct the infrastructural deficit in the country, especially in power and transport system.

The analysts, however, warned that free entry, free exit interaction as well as extreme case of insecurity might pose a major challenge if the Federal Government fails to deploy its security apparatus to deal with the problem.

The report stated that there will not be possible downward shift of policy rate, arguing that upward review would trigger inflation rate rise.

“As noted earlier, we do not expect the CBN to be aggressive in raising rates in 2012 in the same way it used its monetary policy tool in 2011. We believe yields in the market are at levels that can induce saving and make consumers postpone current consumption for savings.