Best Stocks to Buy and Hold In Nigeria 2019 – Banking and Insurance Stock Recommendations In Nigeria – Best Performing Dividend IncomeStocks To Invest Your Money.
Nigeria still relies on oil as a key revenue driver but this year, the energy market has had an insignificant impact on the country’s stock market index, down year to date by 16%, despite the rising price of crude oil in the international market, now above $60 per barrel.
As we wrap up 2018 and prepare for the new year, I would like to discuss the economic indicators, and market risks that will influence equity market investment decisions and key sectors to focus on.
Where Are We Economically – Risk Perspective?
Nigeria relies on imported products for its daily personal and business needs as such exchange rate stability is very important to the sustainability of the economy.
This is the sole reason…
The CBN has shown its resolve to keep the Naira from weakening against the dollar at all cost, even if it’s going to starve the private sector of credit and burn through the country’s external reserve as a record price.
Foreign capital exit to high-yielding assets in the developed countries., at the same time, is expected to intensify on the back of a rising yield on US Treasuries as the Fed plans more rate hike in 2019 and growing political uncertainties which will impact the risk premium on Naira-denominated assets and put pressure on the exchange rate.
The Naira has already weakened from N360, the rate it exchanges to a US dollar at the beginning of the year, to N363.32 at the I & E windows. This, coupled with massive equity sell-offs in the local bourse, is a clear indication that foreign investors are already exiting the economy for greener pastures.
Here is a big opportunity for smart investors:
Since the CBN has vowed to protect the weakening Naira, it surely would have to find a way to reduce Naira sales at the I & E window by enticing these foreign investors with higher rates on fixed income securities like Treasury Bills and Bonds.
Using the recently concluded Auction on Wednesday, 31/10/2018, where Treasury Bills worth N145 billion were issued the stop rate on 91-day T-bills trended upwards to 10.975% compared to the stop rates at the previous auction, 10.96%, it is also visible that the apex bank has started its drive to make Naira asset attractive.
The rate of 182 days and 364 day T-bills rose to 13.49% and 14.4% respectively from 12.69% and 13.45%. I expect this to continue in the coming auctions.
With average bond yields at around 14%, the rise in T-bill yields is gradually taking us back the era of “FREE MONEY IN THE MONEY MARKET“, last seen in 2017 when the yield on short-term securities rose to 17% record level, above long-term rates. This will no doubt mount pressure on the government as debt servicing cost may rise to 69% by the end of the year.
When yields on T-bill starts rising and becomes attractive, funds that would have been channelled to private sector lending would be diverted to these safer government securities.
If CBN T-bills slow-down hurts bank’s profitability in the first and second half of 2018 financial year, it makes sense to say that the rising yield on T-bills issued will also drive the financial sector’s profitability in which the bank, insurance, and other asset managers are part of.
Offering a higher yield on short-term securities may not be the only resolves of the apex bank, it is also “upping” dollar interventions to save the Naira from devaluation but the former seems to be more effective but expensive.
Going Forward – Key Sectors to Watch in 2019
Bank lending, as shared on how bank wants to make more money, is already dipping on the account of weak economic activity and political uncertainties with big banks cutting their loan book while increasing their investment securities. In 2019, we expect banks to park more of deposit generated in T-bills.
- My top 3 banks to watch are Zenith, UBA and GTB; they all offer attractive dividend yield and may appreciate in price.
Based on my 6 checklists for picking dividend income stocks, UBA and Zenith are my preferred dividend stocks.
Insurance companies are also expected to invest more of the net premium income generated from policyholders on these fixed-income assets. I would advise you key into profitable insurance stocks with above average return on equity and a combined ratio of less than 100%.
- My top insurance stock picks are Custodian Investment plc (dividend and share price appreciation) and NEM (share price).
Investment firms that provide investment banking, asset management, securities and insurance services to corporations, governments, high net worth, institutional and retail clients are also not left out of the interest income from rising yield on T-bills in 2019.
- My top picks for dividend income and share price appreciation are UBA Capital and Africa Prudential
While these best stocks to buy and hold in Nigeria 2019 have had their past profitability driven by rising yield on T-bills, it doesn’t in any way imply a BUY or SELL recommendation nor negate other listed equities, you are advised to do your homework.
One of my results – I shared an analysis of Cement Company of Northern Nigeria ( CCNN ) in February and why you should buy the stock. The price has increased from N16 to hit N31, 90%+, now at N22.