The current low prices of stocks occasioned by the downturn of the economy present bargain hunters investment opportunities. CHRIS UGWU writes
A bear market refers to a market-wide decline in stock prices of at least 15-20 per cent coupled with a pessimistic sentiment about the market. Clearly, these times are nothing to look forward to and fighting back can be dangerous. However, according to Investopedia, bear markets can provide great opportunities for investors.
“The trick is to know what you are looking for. Beaten up, battered, and underpriced: these are all descriptions of stocks during a bear market. Value investors such as Warren Buffett often view bear markets as buying opportunities because the valuations of good companies get hammered down along with the poor companies and sit at very attractive valuations. Buffett often builds up his position in some of his favorite stocks during lessthan- cheery times in the market because he knows that the market’s nature is to punish even good companies by more than they deserve,” said Investopedia.
Here’s a fact that doesn’t get enough attention: By some counts, up to 86 percent of active funds underperform their benchmark, but by definition 100 percent of truly passive funds underperform theirs. Why is this? Because — unless they are taking some type of an active bet or have zero management and administration costs — they have to fall short of their benchmark.
As the debate over active versus passive investing continues, investors and regulators alike are overlooking a key point: Passive investing wouldn’t make anybody any money without active investing. Passive investors are essentially free riders, piggybacking off active managers at a fraction of the expense it takes to research investment positions. No one in the investment press focuses on this moral hazard or on whether or not this is fair to active investors, who effectively subsidize their passive brethren.
The media question the value of active management, but they never bother to acknowledge that without it passive investment wouldn’t exist, let alone thrive. Passive investors only make money if markets move, and active managers are responsible for those movements.
The Asset Under Management (AUM) of FBN Capital Asset Management has fallen dramatically over the last few months. Per data from the SEC, the AUM of the fund manager stood at N34.9 billion as at September 30 2016. This represents a whopping 69.3% decrease from its Dec 2015 AUM of N81.7 billion. The reason for the decrease can be traced to the large redemptions being witnessed by the manager’s flagship fund, FBN Money Market fund. The FBN Money Market Fund which began the year 2016 with a net asset of N72.6 billion, has seen an estimated N76 billion in redemption and a net equivalent contribution of N28 billion leaving it with a September 30 NAV of about N25 billion. In October 2015, FBN Money market fund over took Stanbic IBTC Money Market Fund as the largest mutual fund in Nigeria, a position it held until July 2016 when the tides began to turn.
It is no longer news that the Nigeria Stock market has been choppy in 2016 with investors scrambling to uncover hidden opportunities. Of the 10 major market indices in Nigeria, four have recorded positive returns YTD as at the end of Q3. The NSE Allshare index boasts of a negative 1.7% return so far this year. Compared to similar period in 2015, this performance is actually an improvement. By the end of Q3 2015, all the major indices, but two, were in the red with the All share index at -9.92%.
There seems to be an asset class that has not done so badly in the first nine months of 2016. That asset class is Nigerian Mutual Funds. Going by data released by the Security and Exchange Commission and analyzed by Quantitative Financial Analytics, mutual funds in Nigeria made an estimated N3 billion profit on a YTD basis by the end of Q3 2016.
The Minister of Industry, Trade and Investment, Dr. Okechukwu Enelamah, has stated that the strategic focus of the ministry’s master plan for diversification and growth of the Nigerian economy is to work with private and development capital firms to leverage resources in order to achieve set target.
Enelamah disclosed this in Abeokuta, Ogun State on Monday while presenting the plan for economic diversification and growth by his ministry to the 8th National Council on Industry, Trade and Investment.
The minister, in a statement signed by his Strategic Communications Adviser, Constance Ikokwu, stated that with limited resources, the diversification and growth plan, otherwise known as the MITI Plan, was based on a partnership with the private sector.
Policy flip-flops by the government, dwindling poor corporate results by quoted companies and general downturn in the economy have led to a fall of N2 trillion in the value of the Nigerian equities market within the last one year, THISDAY checks have revealed.
The value of the equities market stood at N11.512 trillion on June 3, 2015 but has dipped to N9.491 trillion as at June 3, 2016 as investors dumped shares on the back of policy inconsistency on the part of government, dwindling oil revenue and general challenging operating environment.
Although the equities market has suffered decline for the past two years, it was expected that the entry of a new administration would reverse the negative trend.
Naira rose to N361 to the dollar on Tuesday in the parallel market compared to the N357 price achieved on Monday. The naira has been depreciating in recent weeks as the CBN continues to leave Nigerians in the dark about what its planned forex policy will look like.
Despite President Muhammadu Buhari’s apparent strong opposition to the devaluation of the naira – foreign investors are still expecting an imminent devaluation of the local currency – New Telegraph has learnt.
According to sources in the forex market, the expectation that the naira would soon be devalued is the main reason why most foreign investors are reluctant to invest in the country.
A Lagos-based Bureaux De Change (BDC) operator, who did want his name in print, told this newspaper that his efforts to source forex from investors overseas have not been successful because of the concern that the Central Bank of Nigeria (CBN) could suddenly devalue the naira.
He said: “I have been trying to get inflows from some of my contacts in Dubai and the United Kingdom, but it is either they are reluctant to sell or they insist on selling at close to the going parallel market rate.
According to them, they are expecting that the CBN would soon devalue the naira and they don’t want to be caught unaware when this happens, as it could lead to them losing money.”
Despite closing in the red in two of the four days trading, the Nigerian equities market maintained its positive run last week to close the week in the green.
The performance was boosted by the announcement that the MSCI will retain Nigeria in its benchmark frontier market index.
Also, some quoted companies released better-than-expected first quarter results, a development, which excited the market.
Notably, Nestle Nigeria Plc released its first quarter result showing improved performance, result analysts termed, “resilience in turbulent times.”
At the close of trades, the NSE All-Share Index and market capitalisation appreciated by 2.55 per cent to close the week at 25,701.60 and N8.841 trillion respectively.
Similarly, all other Indices finished higher during the week, with the exception of the NSE Insurance Index, that declined by 0.78 per cent.