Come 2018, the Capital Market is expected to attract more investors if the stability in government continues. Mr. Tunde Bamidele, an investment banker with Cordros Asset Management Ltd, a subsidiary of Cordros Capital Limited, in an interview with our Correspondent CHINWE MADUAGWU, said the Capital market was gaining momentum and that if the trend continued, 2018 would be an exciting year for the sector.
TNE: What is investment?
Investment is actually saving and planning for a better future, beginning from your current earnings to create the kind of future you want for yourself and it comes in different ways. There is the Real Sector and the Financial sector depending on your investment horizon and your risk appetite. These are what determine the kind of investment one may go into.
TNE: Can you elaborate more on the Real and Capital sectors you just mentioned?
The Real Sector has to do with those in manufacturing sector, the communication industry, the food and beverages industry and the oil and gas. Those that are not in the service industry. The financial sector has to do with the Money market and the Capital market. When I say Money Market, it has to do with the market for short term funds whose operators are the banking sector and has as regulator, the CBN, while the Capital market is where you get long term investment funds and they are regulated by the Securities and Exchange Commission (SEC).
TNE: These are difficult times for a lot of people. Many are struggling to eat. Shouldn’t one be comfortable first before thinking of investing?
People will always say that. I was at the Air Force base sometime ago to talk to them about investment and planning and like I told them, nobody is going to be comfortable. Even the millionaires of this world still work hard so that they can get more. If you say you want to wait till you’re comfortable before you start saving, you will never get there and you will never be comfortable. What it takes is for one to sacrifice and be determined. It takes financial discipline and sacrifice for one to be able to save and from your savings you can invest. You can easily save and it will grow but when you invest, it multiplies the growth rate.
Saving simply means putting your money in the bank, but when you invest, it fastens the growth than ordinarily putting it in the bank. That’s the purpose of investing with your saving. You don’t have to wait until you are comfortable. From the little you are getting today, you can create better future for yourself so you can live the kind of life you want at the end of your active years because you can’t work forever; there comes a time when you will retire and our savings and investments are the things we will rely on.
TNE: You said to save from the little one has. Can somebody invest with as little as N10,000 – N20,000?
Yes they can. There are different forms of investments depending on your investment horizon, experience and risk appetite. With N10,000, I’m sure you’ll agree with me that somebody can start a business by the road side. With N10,000 you can start pure water business and you can also invest and save too. It’s a form of investing and doing business. That’s talking about the Real Sector, but if you consider the Financial sector and the kind of investment you will get there, there are opportunities that are very expensive to enter and there are some that have been broken down into retail ends for retail investors such as Mutual funds.
Mutual Funds are opportunities for the low income earners; like you said, those who do not have too much money to invest in some of those quality money market or capital market securities that ordinarily would have been very expensive to come by but with such investment opportunities as mutual funds, you can invest as little as N10,000.
TNE: How can one identity genuine investment opportunities and fraudulent ones?
It is very easy if you know and if you don’t know, it is very difficult to spot. One thing you should first ask is how realistic are some of the things they are promising you. There are some of those returns that are not realistic and they cannot defend.
You should find out what the underlying securities or investments that the fund is going to be used for to guarantee the amount of returns they are claiming.
Recently, there were some investment opportunities that were going round, I don’t want to mention names, but some of them were ponzi schemes. When you talk about ponzi schemes, it is created to fail at some point in time and if you don’t look at it and examine it very well, you will not know; but for you to know that it’s a kind of puzzle scheme, the kind of returns they’ll promote you cannot be commensurate with the kind of investment you have. Some of them don’t even have an underlying investment in which they invest those funds to be able to generate such amount of money.
Also, you need to ask yourself or whoever is introducing such product to you what the regulatory guidelines guiding the products are, and who the regulators are. Some of them do not have a face, no physical office and are not even registered with the appropriate regulatory bodies, not to talk of being regulated. But once you know the regulators, you can identity some fraudulent offers.
For instance, if it’s money market, you know it’s under the rules and guidelines of CBN, and if it’s capital market you know it’s regulated by the SEC. There are also other self regulatory organizations like the Stock Exchange, NSDC, among others.
Some of the fraudulent ones that have been around, which people have fallen for don’t have any regulations guiding their activities.
These are some of the things you have to look out for when you are considering investing.
TNE: Talking about regulating the sectors, how would you rate the investment regulatory agencies?
I would say that they have been doing well in recent times. In fact, for some of us who are operators, you may say we are being over regulated. There are a lot of things that are required of you when you are an operator – talk about daily reports, weekly reports, monthly reports, quarterly reports. In fact, there is no kind of activity you go into that you don’t report and how you go about these reports is provided by the regulators, that is, in terms of guidelines. There are a lot of regulations guiding every activity in the market presently, you can see then that we are in safe hands. Apart from the fact that we are Nigerians and we are human beings as well, sometimes sentiments come, familiarity comes in and you can not rule out politics as well in implementing but in terms of regulations, we have enough to protect investors in the market.
TNE: The year is coming to an end and most companies are ending their financial year. How has the investment sector fared this year?
The market has been uprising for sometime now. I’m speaking for the Financial market where I belong. The Real sector has also witnessed some remarkable growth, apart from the fact that Forex has been a big challenge for some of them because Nigeria is majorly reliant on foreign products or foreign raw materials. Really, the need for forex has been a major hindrance to their performance.
Recently, thanks to the stability in the Niger Delta region our oil production has been very stable and that’s where Nigeria’s main revenue comes from. Since that has stabilized, Nigeria has been able to increase it’s foreign exchange reserve and from there we have been able to intervene in the forex demands, that’s why forex price has been stable. This in turn has been of great help to the manufacturing sector. They’ve been able to get their forex available whenever they need it for their importance.
Of course, some of these things are regulated. There are some luxury products that are not supported by government in terms of provision of forex, but for those ones that are recognized, government has been able to provide forex for them. For now, everything seems to be going on well, hoping and believing that the stability in the Niger Delta will continue and I think government too would not want to joke with that because that’s a very major factor in the economy because we still rely on oil.
There has been a major improvement in the sector from when this administration came in. Initially, in terms of financial and economic policies, they appeared unsure but they’ve been able to get it right, that’s why the rate has been stable. In fact, they are scared to touch the NPR, which is the benchmark that will determine all other rates because they don’t want to destabilize the existing stability in the market, which is the major determinant to both the Real sector and the financial sector. The NPR itself is as a result of the stability in our oil production, which is the bedrock of whatever we do in this country for now.
TNE: Without prejudice to the sector you belong to, if someone approaches you for advice on where to invest, which area would you suggest and why?
As an asset management person, what we advice people to do is to have a very good and quality mix in terms of investment. That is having both long term and short term investments and in real sector so that whatever happens in the market you’ll still be in good standing because the markets are complementary. Once one is going down, the other one goes up.
If you are a major investor, it is better to have a good mix of both the long term and the short term. In the short term, you can consider money market products and in the long term, you can consider capital market investments such as shares and bonds because once the rate in the money market is going up, there is a tendency for people to dump the capital market because the attraction will be in the money market. The attraction there is that it gives easy returns without much stress. You can just put your money in the bank and that’s what has been happening for the major part of this year because government has been very consistent in the act of mopping up funds so they’ve been coming to the market to borrow funds at a very high interest rate and that has been a major factor for the money market which makes some of the rates they are giving very high even though it’s been stable. But their body language is showing that they are likely going to reduce some of these rates going forward. Also, the rate for the treasury bills the government has been issuing in recent times is on the low side so attraction may move to the capital market going forward because they complement each other. Once one is going down, the other one gets attractive and goes up.
TNE: Can it be said then that come 2018, the capital market will witness more investments?
That’s actually the expectation. Presently, the capital market is gaining more momentum than earlier in the year because the rate in the money market has been retracting gradually due to the fact that the government has been on a very low interest rate. The attraction is moving gradually and the capital market is getting the attraction and prices have started picking up, hopefully the stability in government will still continue.
We are also entering the electioneering period beginning 2018. Hoping there won’t be any unforseen circumstances, we know that the electioneering period comes with its positive and negative. The positive is that money will be flowing; the market will be bubbling and there will be money everywhere, the capital market will definitely benefit from that.
If the government continues with the act of borrowing, the money market will also remain attractive because even the next year budget has a shortfall of about N2. 2trillion that needs to be sourced. We suspect that the 2.2 trillion will be borrowed, whether from within or from outside. If it is coming from Nigeria, it will still attract very good rates.
Borrowing from outside is also very viable for government because the last one they borrowed recently was over subscribed and that is a kind of confidence that the international market has in the Nigerian economy because if they didn’t have that confidence, the bonds would not sell.
TNE: What are some of the challenges you faced in the investment sector?
As operators, the greatest challenge we normally face is inconsistency in government policy and that is a major factor in our decision taking. However, apart from early in the year when government appeared not to be sure which direction to take we’ve been experiencing stable regulations. Consistency is a major factor in our line of work because when we take decisions base on a particular policy, if government ups and changes that policy, it disrupts the flow of the market.
Liquidity is also a major challenge when it comes to investment opportunities. We as operators are sometimes short of liquidity and it is only when the market is moving that we have enough liquidity to operate in the market.
As an investor, the major challenge is to identify the best and safe investment opportunity and the one that will yield the maximum returns with minimum risks and the best way to do that is to approach an investment advisor to get the best investment advice before you go into any form of investment. Once you do that, you will, at least, be able to take a wise decision to avoid whatever risk that is applicable to whatever investment.
TNE: Can someone walk off the streets and invest? Must one have an investment advisor?
It is advisable to get an investment advisor because they will give you a good understanding of what it takes – the good, the bad, and they will be able to advice you what direction to take. Investment advisors come in different forms depending on where you are looking at; If you are the type that is risk averse, you don’t want to take too much risk, you can consider the Money Market, instrument and securities which will guarantee your fund even though you will make relatively lower returns, but at least your investment capital will be safe and secure.
But if you are the type that can take risks, you can consider the capital market like securities trading. Securities trading has the potential to double your money within a short period of time because ordinarily the stocks are allowed to appreciate 10% in a day. You can imagine if you put in some amount of money and you are lucky the market moves in your direction. Within ten days, 10% every day, that’s 100%. You will double your money; but it’s also possible that you may lose the whole money within the 10 days. That’s why you need investment advisors. In that kind of situation, if you have an investment advisor he will be able to advice you when to move in and when to come out.
TNE: A few months ago, the government said we were out of recession but are we really out of recession?
Technically, we are out of recession but realistically prices are still very high and inflation is still on the high side. But it’s a matter of time for these indices to reflect the GDP growth that we have witnessed in recent times. Actually, the GDP is also a reflection of the market prices, but holistically some major prices are still very high. But we believe that the consistency in policy and government activities, political stability especially in the Niger Delta region, continued revenue growth, diversification of the economy particularly agriculture, which is another sector that will attract investment both within and outside the country, are some of the things that move our economy going forward.
TNE:You keep making reference to the Niger Delta region so would it be correct to say that whether we like it or not, the Niger Delta is key to the economic growth of the country?
Yes. As we speak now they are the very key and that’s why government cannot jeopardize the relative peace we are having there now. If you look at the budget, there are two allocations to the region, that’s to tell you the importance government attaches to the region. Still looking at next year’s budget, there is over 2.4 trillion expectation in terms of revenue from oil even though the budget says that the non-oil sector will provide more than the oil sector; but we know that if you separate the non-oil sector and look at them individually, the oil sector still contributes more.
So, as long as we still rely on oil production and we don’t have any alternative from other parts of the country, they will still continue to play the major role and they will continue to be very important to the survival of the country.