Monday, January 09, 2017/ 2:47 PM /FDC
Q: I invested $100k in the Nigerian stock market in 2015. I exchanged the dollars at N197/$. My portfolio in dollar terms is now less than $40,000. What should or can I do?
A: With a current portfolio value of $40,000, a return of 150% is required for the portfolio to return to its original value. This does not take into account the time value of money and inflation. Investing with a portfolio that is 60% under water would require making a decision between losing only 60%, 80% or more. An investor’s risk appetite is paramount.
The performance of the stock market doesn’t foster such confidence as the NSE All Share Index lost 6.17% in 2016. Deciding on an investment action involves taking into account two kinds of risk: market risk and currency value risk.
Market risk involves the risk of loss in investment value due to price movements. Currency value risk involves foreign exchange risks. Only a highly optimistic investor would expect a quick rebound of the Nigerian bourse. The exit barrier is higher than the entry barrier in the Nigerian stock market.
Those already in the stock market could stay and buy some bargain stocks with good fundamentals, thereby reducing their average cost. Such value stocks provide opportunity for an immense upside.
The performance of quoted companies and the stock market in 2017 will depend on several economic factors including inflation, forex volatility, government revenue, budget implementation, and monetary and fiscal policies.
Trading pattern will be largely determined by the pace of the economic recovery and the implementation of the budget. Based on economic fundamentals and performances in the last few years, there are certain stocks that could provide significant upside potentials for companies. These stocks include Presco, Okomu, Forte Oil and Mobil.
They are positioned to take advantage of opportunities in the agriculture, downstream and power sectors. For those not interested any longer in the Nigerian stock market, there are quite a few viable options. They could invest in the fixed income market or other alternative assets such as real estate that could appreciate in the future. This does not remove the foreign exchange risk.
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