Investment experts at Bancorp Securities Limited, a leading investment research and consultancy services in Nigeria have predicted that based on the current micro and macroeconomic indicators in the nation’s economy, investors in the Nigerian capital market would enjoy positive returns on their investment this week.
The experts, in the firm’s ‘Weekly Stock Recommendation for Jun 10 to Jun 14, 2024’, hinged their forecasts primarily to sustained momentum in the financial services sector due to the listed companies strong financial performance in the first quarter of this year.
The analysts stated: “We anticipate positive returns on the domestic bourse this week, driven continued momentum in banking and insurance stocks due to their strong recent financial performance, as evidenced in Q1 2024.
“Analysts’ consensus on improving macroeconomic outlook, particularly for H2 2024, could catalyze portfolio rebalancing in weeks prior to July 2024”, they added.
The investment researchers noted that in a recent report, the foreign reserves for Nigeria increased to USD 32.69 billion in May 2024, a 1.68% improvement year-on-year, describing the development as multifaceted, encompassing several positive outcomes as well as potential challenges.
Specifically, they listed some of the benefits as including higher reserves buffer against exchange rate volatility, helping manage inflation and reducing uncertainty for businesses and investors, which boosted confidence among foreign investors and rating agencies, indicating adequate liquidity to meet obligations.
According to the experts, sustained higher reserves can improve Nigeria’s credit ratings, lowering international borrowing costs for the government and private sector, and facilitate easier import financing, ensuring a steady supply of essential goods and raw materials, supporting economic growth.
On the negative side, they pointed out that tying up funds in reserves increases opportunity costs, diverting resources from potentially higher-yielding investments like infrastructure, education, or healthcare, adding that over-reliance on reserves for currency stabilization can mask underlying economic issues, such as low productivity and poor competitiveness with the attendant implications of creating a false sense of security and delay essential economic reforms.
In summary, the analysts maintained that while rising foreign reserves can provide significant economic benefits to Nigeria, addressing underlying economic issues through diversification, fiscal discipline, and structural reforms is crucial for ensuring long-term sustainable growth and stability.
