11 February 2013

Nigeria: Reduce Your Risk, Invest in Other Asset Classes

One of the major problems investors in the capital market, especially minority Nigerian shareholders, have been known for over time is over-concentration of their investment in one asset class, this time in equities (shares). Not just do they put all their money in equities, it is also concentrated in some particular sectors.

In the period prior to the meltdown that engulfed markets around the world, sectors like banking, insurance, food & beverage, Petroleum, and other multinational companies scattered in few sectors of the Nigerian Stock Exchange, NSE, enjoyed more attention and patronage from investors. A particular investor, for instance may have all his/her investments locked in banking sector with handful in other sectors, and that is if there was any in another sector.

This uninformed manner with which Nigerians played the market following the boom days accounted for huge losses recorded at the period of bubble. But participants in the market, including operators, analysts and even regulators themselves, has pointed to this as an anomaly. They agreed that if this manner of investment should be curtailed, the rate of exposure to risk will highly be minimised.

In addition to this is the need to seek professional advice whenever investment in the capital market is to be made. Mr. Wale Oluwo, Managing Director, Investment Banking, BGL Securities & Investment Limited, said the need to diversify ones portfolio when it comes to investment in the capital market cannot be over-emphasised. He said that there should be proper mixture of diverse asset classes in ones basket of investment in order to reduce the accruing risk.

"You know investment in the capital market is about construction of a portfolio and your portfolio can consist of equities, debt, properties and a host of other things, even currency. You can have dollars in your portfolio, but you just have to diversify it and reduce your risk as much as possible.

"I will not say investors should move away from equities and move to bonds. They should combine their portfolio in such a way that they will have more bonds than equities and continue to monitor the market. You know, one thing is that an investor can keep moving his money from one asset class to the other. As you move away from bonds, you can move to equity and money market instrument and all that. It must be a dynamic thing when it comes to construction and restructuring of portfolio," he said.

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