The decision by the Central Bank of Nigeria (CBN) to raise the interest rate by 15.5% has further reduced investor appetite for equities as investors continue to shift their financial assets from equities to instruments. of the money market.

The MPC voted to raise interest rates to 15.5% as the apex bank battles rising inflation.

The Central Bank at its last MPC meeting had raised the interest rate by 11.5% to 14% in the last two meetings, however, with the inflation rate still exceeding 20.52% in August, the CBN further increased the rate to 15.5% ina try to fight against the rising cost of goods and services. Inflation is now 20.77% for the month of September.

Despite these rate hikes and the associated impact they have had on capital markets, particularly stocks, investment experts who have made money for the rich over the years recommend that the time is probably just started accumulating shares.

Why should you consider stocks

According to market analysts, when the interest rate is low, speculators move their funds from money market instruments to the stock market for a higher return, just as they move from stocks to other asset classes. , especially money market instruments when the interest rate is high.

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  • If the microeconomics improves and inflation starts to come down, then this will favor the stock market which will start to stabilize.
  • There is certainly an impact on equities due to rising interest rates, but investors shouldn’t make the mistake of thinking these moves mean you should ditch the stock market altogether.
  • Rather than avoiding the market after the sell-off, there is still money to be made if investors are in the right sectors.
  • This means looking at some of the sectors that have been the best performers despite the difficulties in the economy.

According to Nairametrics’ conversation with some investment analysts, low-priced, dividend-paying stocks with strong fundamentals should do well given their decent half-year performance.

  • They noted that given tThe decline in share prices of listed companies in this sector makes it more attractive to invest.
  • In typical Nairametrics style, we spoke to financial experts to get an idea of ​​the stocks they can invest in.

What financial analysts say

Mr. David Adonri, Executive Vice President, Hicap Securities Limited said:

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  • “As interest rates rise, financial assets migrate from equities to the debt market or fixed income, which means equity prices will fall. This is an opportunity to buy stocks.
  • Areas with elastic demand, such as consumer goods stocks and banking stocks, should be supplied to recover during interest rate increases.
  • “Investors should take positions in food and pharmaceutical companies such as Okomu Oil Plc, Presco Plc, BUA Foods Plc, GSK Plc, Neimeth Pharmaceuticals Plc and May & Baker Plc.
  • “Banking is still the real thing, especially in times of rising interest rates and inflation. Banks such as Zenith Bank Plc, UBA Plc, GTCO Plc, Access Bank Plc Fidelity Bank Plc and Stanbic IBTC are good investment destinations. Oil and gas stocks should also benefit from inflation.
  • Most of those companies with good track records that have fallen so low that investors are migrating to fixed income provide investment opportunities for investors as they are likely to recover as the economy adjusts. Like bank stocks that have fallen so low, they are likely to recover very quickly when the economy has adjusted.”

According to Managing Director Cowry Asset Management Limited,Mr Johnson Chukwu

  • “Companies that pay dividends offer better opportunities, especially companies that pay an interim dividend.
  • Financial stocks like GTCO, Zenith Bank, Access Holdings, Fidelity Bank and consumer goods stocks like Guinness Nigeria, and Nigerian breweries that have paid interim dividends are good choices.
  • The reason is that cash is king when cash arrives regularly you can either invest in fixed income securities or reinvest in equities”.

Kasimu Garba Kurfi, Chief Executive Officer and Managing Director, APT Securities and Funds Limited said:

  • “Stocks when the interest rate is high like this time. Invest in stocks that offer double-digit dividend yields, such as GTCO, Zenith and UCAP, and also stocks that have double-digit returns such as WAPCO, Fidelity Bank and Transcorp. Dangote Cement, Dangote Sugar, Vitafoam, Fidson, BUA Foods, Nigeria Flour Mills, Prescoand also stocks with prices less than 52 weeks old, such as UBA, Access Holdings, GTCO, Transcorp, AIICO and AXA-Mansard”.

Mr. Mike Eze, Managing Director of Crane Securities Limited said: Taking an active approach to stock picking can create attractive investment opportunities due to rising interest rates.

Take banks, for example. Banks earn more when interest rates rise, based on the simple fact that they can charge more on the money they lend – interest income and operating profit margins benefit.

  • Also, based on that, take a look at companies that have a decent amount of money in the bank. Cash-rich companies also benefit from higher interest rates as they earn more on their cash reserves.
  • So all of those businesses that cut costs and hoarded cash during and after the pandemic will now reap even bigger rewards, just for having stacks of cash now paying their own way.
  • The banking sector is still the real sector, especially this last quarter of the year. Banks such as Zenith Bank Plc, UBA Plc, GTCO Plc, Access Bank Plc Fidelity Bank Plc and Stanbic IBTC are good investment destinations for this period.
  • “When they were reduced for the interim dividend, their prices started to come down and that’s to investors’ advantage. It’s a good area to invest in now compared to the end of the year. where they will pay their dividend.Investors should look to these high-flying banks.

But, but, Nairametrics analysts however, recommend a cautious approach to investing in equities despite the opportunities that abound.

  • Stocks are likely to fall further before starting to rally again as has been the case in recent years.
  • Therefore, a laddered approach to buying stocks should be explored, where you buy in increments and profit from falling prices.

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