Financial Market Investments for Sustainable Wealth Creation

Have you ever wondered how some investors manage to build wealth that not only stands the test of time but also grows steadily despite market fluctuations? The secret lies in mastering a diverse array of financial market instruments. These instruments, including stocks, bonds, mutual funds, and more, each offer distinct advantages and cater to various investment strategies and risk profiles. Therefore, understanding how these instruments work and their role in sustainable wealth creation is important for long-term financial success.

Sustainability in financial investments is about more than just generating returns; it is about ensuring these returns can be maintained and grown over the long term. This involves understanding market dynamics, adopting sound investment strategies, and being mindful of reforms and policies that increasingly influence market behaviour.
Thus, this article aims to explore the current landscape of financial market investments in Nigeria and provide strategic recommendations to help investors build sustainable wealth.

Present Financial Market Landscape in Nigeria

Nigeria’s financial market is a vibrant and evolving sector. Despite facing challenges such as inflation and exchange rate volatility, the market has shown resilience and growth potential.

The Resilience of The Equities Market

Exceptional Performance of the NGX: Firstly, the equities market has demonstrated exceptional performance and has made significant strides in recent years. In 2024, the Nigerian Exchange Limited (NGX) emerged as the best-performing stock market globally, achieving a remarkable year-to-date return of 26.43 percent as of January 19, 2024. This surge propelled the NGX All-Share Index to 94,538.12 points, up from 74,773.77 points at the end of 2023.

In addition, in the first half of 2024, Nigeria’s equities market recorded substantial growth, generating N15.68 trillion in gains for equity investors. This impressive growth outpaced other African markets such as Casablanca and Johannesburg and even surpassed major global indices like the NASDAQ and NYSE.

Sectoral Contributions to Market Performance: Several sectors have contributed to this impressive performance. For instance, the industrial sector saw substantial gains with a year-to-date growth of 73.14%, followed by the consumer goods sector at 41.05%, the oil and gas sector at 38.12%, and the insurance sector at 21.42%.

Additionally, the growth of the banking sector is noteworthy. In 2023, the banking sector’s total assets rose by 25.12%, reaching N77.59 trillion. This growth was underpinned by increased economic activity and heightened participation in the financial markets. Despite recent challenges, the banking sector has remained a pivotal contributor to the success of the equities market, with key banking stocks experiencing capital appreciation of over 100%.

The Nigerian banking sector continues to be a cornerstone for investors, driven by high-interest rates and currency revaluation gains. Top-tier banks have shown resilience and strong performance, attracting significant investor interest. Further growth is projected in the banking sector, supported by expected recapitalisation and industry consolidation.

The Battle with Inflation, Attractiveness of Bonds

The Central Bank of Nigeria (CBN) has implemented several Monetary Policy Rate (MPR) hikes, with the current rate standing at 26.75%. These hikes are part of efforts to combat inflation and stabilize the economy. Higher MPR makes borrowing more expensive, which may dampen consumer spending and investment in riskier assets like stocks. However, it also increases the attractiveness of bonds as an investment vehicle, offering higher returns with relatively lower risk.

Attraction of Foreign Portfolio Investments (FPIs): The high MPR has made Nigerian bonds particularly appealing to foreign portfolio investors (FPIs). Foreign capital inflows into Nigerian bonds surged to $420.81 million, representing a nearly 40% increase compared to the $301.08 million recorded during the same quarter in 2023. The allure of high yields in a relatively stable environment has drawn significant foreign capital into the bond market.

Yield Comparisons: With MPR at 26.75%, government bonds are offering yields of up to 20%, which is significantly higher compared to other emerging markets. For example, South Africa’s government bonds offer yields of around 8%. This differential makes Nigerian bonds highly attractive to yield-seeking investors.

Inflation Hedge: Bonds provide a stable income stream through interest payments, which can be particularly attractive in an environment of rising prices. The high yields on Nigerian bonds help investors hedge against inflation, ensuring that their investments do not lose value in real terms.

In summary, the MPR hikes by the CBN have had a dual impact: while they may dampen growth in some sectors, they have made bonds an increasingly attractive investment option. This trend underscores the importance of bonds in a diversified investment portfolio, particularly in times of economic uncertainty.

Case Study: Access Holdings’ Recapitalization Efforts and Investment Opportunities

Coronation is proud to be the issuing house for Access Holdings’ latest Rights Issue. This collaboration underscores our commitment to facilitating strategic financial initiatives that drive long-term growth and value for investors.

Access Holdings is actively engaged in significant recapitalization efforts to strengthen its financial base and fuel further growth. The company has launched a Rights Issue of 17.7 billion ordinary shares at N19.75 per share, totaling approximately N351 billion. This initiative is part of Access Holdings’ strategic plan to enhance its working capital, support expansion, and invest in its non-banking subsidiaries, such as pension and fintech businesses. The Rights Issue is integral to the bank’s 2023-2027 strategic plan aimed at maximizing emerging opportunities and delivering long-term value to shareholders.

Financial Performance and Indicators

Access Holdings has showcased robust financial performance, particularly in the first quarter of 2024, where it recorded an after-tax profit of N159.3 billion, more than double the previous year’s N71.8 billion. This substantial growth underscores the company’s capability to generate significant returns and manage its operations efficiently.
The recapitalisation efforts, exemplified by the issuance of new shares, further strengthen Access Holdings’ capital base, positioning it for sustained growth and stability. This, coupled with the bank’s strategic initiatives and strong financial health, makes Access Holdings a prime investmentopportunity in Nigeria’s financial services industry.
Investors looking for sustainable wealth creation should consider adding Access Holdings stocks to their portfolios, given its proven track record, attractive dividend payouts, and strategic growth plans.

Conclusion

Looking ahead, investors are advised to keep an eye on government reforms and policy changes, such as those aimed at improving economic stability and growth. Continued fiscal and monetary reforms are expected to affect the financial market and create a more conducive environment for investments.

Coronation Registrars Limited is dedicated to helping investors navigate the risks and identify opportunities in the financial markets that will set them on a path toward sustainable wealth creation. For personalized advice and strategic insights, schedule a complimentary consultation with one of our experienced advisors today.
Source: Coronation Registrars Limited