Now that savings deposit rates and treasury bill are at an all-time low of 1.5% and 2.5% respectively, here are helpful ideas for you to grow your idle cash between now and end of 2020: ignore the market volatility, limit the way you watch your stocks every day, the up-and-down swings can make you exit the market at the wrong time. The temporary market gyration is a normal occurrence, after all, no stock moves in a straight line.
Last week, I posted 2 stocks that are about to appreciate and offer impressive return more as we wrap up Q3. This time, I see a big run on some of the big cap stocks on the NSE market.
With NSE all-share index down by 4.5% on a year to date basis and up by 38% and 1.4% in the last 6 and 1 months respectively, I think it’s makes more to show you the market on a monthly chart.
Below is the NSE all-share index in the last 6 years:
After a strong correction that lasted for 2 years, the NSE all-share seems to be showing a possible bullish run that might take the index to 30,000 basis in the coming months. The MACD cross over that aligns with point (D) on the chart tells us what’s next.
Why do I think the market will go up? Fundamentally speaking, there is no other place to get better returns on one’s investment right now in Nigeria – from the recent review of minimum savings rate to 10% of MPR, 100 basis reductions of MPR from 12.5% 11.5% to the long-standing restriction of OMO bills to foreign investors and banks, the economy is grapping with excess idle funds in the bank right now. According to a report on Nairametrics, the total banks’ deposits has increased from N22.2 trillion in the corresponding quarter of 2019 to N27.6 trillion in the second quarter of 2020. This implies a 9.4% increase.
With such a huge funds and inflation rate expected to shoot up 13-14% on average in 2020, what do you expect the big fund managers to do? That means asset managers (including pension funds, insurance companies and mutual funds) might be moving their funds into equity markets as they seek higher return that beats inflations.
Aside the technical setup on chart, this is also a core fundamental factor to supports my bullish outlook in coming months.
How do you position yourself ahead of this bullish run? It’s by buying good stocks in sectors that will benefit from CBN policies and economic trends.
Here are top sectors investors should focus on right now:
- Banking Sector: A downward review of MPR rate and minimum savings deposit rate to 10% of MPR is bullish for banking stocks. Their cost of funds should be lower than the preceding year’s figure, hence boost net interest income. Top banks like Zenith, GTB that post the highest return on equity and lower cost of funds should benefit from these policies.
- Consumer and Industrial Goods Stocks: It makes sense for companies to quickly take advantage of the low interest environment by issuing new commercial paper to pay off previous expensive debts. Some companies are Flourmill, Dangote Cement are already eyeing this instruments to cut down their finance cost.
- Telecom: As businesses migrate to the cloud and embrace remote work, the demand for data is at all time high, big cap stocks like MTN, Airtel will move the market index to the north as investors mop up these telecom stocks ahead of their Q3 results October/November 2020.
Disclaimer: Kindly do you due diligence on the stocks mentioned here.