People & Money

COVID-19: Five Investment Decisions You Can Make by Afrinvest

The novel Coronavirus outbreak (Covid-19) which started in Wuhan, China has spread to over 211 countries and resulted in over 3million cases and deaths in excess of 200,000.This has resulted inrecord sell-offs in global and domestic markets. Nigeria joined the rest of the world in the fight against COVID-19 on February 27th, 2020 and as of April 30th, the number of confirmed cases has risen rapidly to 1,728 and 51 reported deaths.Before the pandemic, the economic outlook on Nigeria in 2020 was somewhat promising with the IMF projecting a 2.5% growth rate from 2.3% in 2019. However, the pandemic has resulted in economic risk which creates uncertainties and investment decision-making a difficult task.

At unprecedented times like these, the natural instinct as humans is to enter into a defensive mode, where preservation of capital appears as the safest decision. However, considering the time value of money, an astute investor must seek safe investment windows that will provide adequate compensation against inflation. Despite the good and tough times that come with investing, leaving cash idle is not an optimal decision for any investor. During this period, an investor must diversify their portfolio to include less cyclical investments just as businesses must endeavor to widen product and sector range. Hence, we have highlighted some emerging opportunities an investor can key into during this period.

  • Invest in the Stock Market

The Nigerian stock market annually attracts over ₦1.4 trillion on average in transactions and investments despite the slowdown in economic performance in recent years. With the outbreak of the COVID-19 pandemic and the drop in oil prices, the stock market now has a significantly lower valuation which presents attractive entry points for long-term investors. Stock prices have fallen to their lowest level in more than a decade, and this presents very low-cost entry opportunities for investment especially for investors focusing on long-term value investing. During this COVID-19 period, we find Telecommunication, Health&Pharmaceutical, Agriculture, Food & Beverages,and Banking as attractive sectors. Making a decision to invest in these sectors through the stock market over the medium-to-long-term has the potential to deliver superior capital returns and dividend income.

  • Money Market Investment:

The money market offers investment opportunities for low-risk investors given that they are risk-free.Instruments offered in the money market include government treasury bills (T-bills), mutual funds, and commercial papers (CPs). Rather than keeping cash idle due to fear, a discerning investor can decide to position in the T-bills market for the marginal returns. Commercial papers, on the other hand, are low-risk short-term debt, issued by companies to finance their working capital and are uncollateralised. Therefore, only good corporates with high-quality debt ratings are recommended. Thus, investors can invest in CPs of large corporations with low default risk.

  • Invest in Mutual Funds

Mutual funds create a great investment opportunity for investors looking to maximize returns and minimize risk through diversification. Here, funds are pooled together for investment in stocks, bonds, money market instruments, and other assets either in naira or foreign currencies. Deciding to invest in a pool of assets rather than having ownership of an individual stock or bond investment, will help offset the impact of poor performing assets while enhancing the overall returns on the investment.Mutual funds are actively managed by fund managers who constantly monitor and evaluate the performance of the fund to ensure continuous returns on investment. Considering the risk of currency volatility, investors can invest in dollar-denominated mutual funds by taking advantage of investment platforms such as the Afrinvest Dollar Fundand Afrinvest-Plutus Fund that offer good returns.

Afrinvest - Simplifying Investments...Creating Wealth.

  • Invest in Bonds

The bonds market provides another viable investment opportunity during these uncertain times by offering low-risk and safe returns to investors. Just like other investment options, it is simply a form of investing where investors lend monies to the government or other big credit-rated corporations for a period of time in reward for an interest rate. Bonds are issued in local or foreign currencies. Foreign currency bonds are called Eurobonds and just like dollar-denominated mutual funds, an investor can buy Eurobond as a protection against currency devaluation. Currently, the average return on Eurobonds is at 12.3% while local bonds are yielding 9.8% and we expect the yield on the local bond to move upwards as the Federal Government ramp-up on its domestic borrowing plans.

  • Residential Real Estate:

With the economy going through a lockdown phase as a way of combating the spread of the coronavirus pandemic, remote working would remain the norm even post-COVID and this would shift consumer focus from commercial real estate to residential real estate.Investors can take advantage of the real estate market that provides regular rental income, to diversify their investment universe. In addition, properties tend to appreciate over the course of time and over their mortgage life, this leaves investors with a valuable asset over a period of time. Also, there are real estate investment trusts (REITs) which pay dividends and are accessible through the Nigerian Stock Exchange trading floor.

  • Investing in Virtual Learning Solutions

The nationwide closure of schools due to the pandemic has created a gap in Nigeria’s educational system. The traditional classroom learning has taken a backseat in the face of the crisis and the attempt to minimize the impact on the system is driving increased adoption of online learning solutions.Most Nigerian schools lack the necessary technological infrastructure to conduct online distance learning. As a result, education technology experts are developing products across Nigeria and other African countries to fill this gap. Investors can channels funds into these digital learning providers working to scale up remote learning during the pandemic.

  • Digital Healthcare Solutions

Investment in the health sector is another possible area of focus given that the sector will enjoy increased economic activity due to increased funding. Technology can help narrow the gap in Nigeria’s fragile healthcare system with poor infrastructure and increased emigration of doctors. This can be done by deploying resources into providing software for self-assessment and symptom checking, limiting the number of walk-in patients while leaving room for more doctors to attend to an emergency and more severe cases.Some companies are already taking advantage of technology to provide healthcare solutions to Nigerians during this pandemic. An example is Wellvis, a Nigerian company that has created a product “the COVID-19 Triage App”for users to check their COVID-19 risk category while providing an opportunity for remote medical consultations at the same time.

 

 

 

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