Investors’ continued neglect of equities and subsequent diversion to short-dated money market instruments despite the stock market attractive valuation has become a source of worry to stakeholders, as they task the government to adopt an economic policy that would urgently respond to the macro challenges currently rocking the domestic economy.
Stakeholders, who noted that investors are not patronising the market to buy stocks despite its current cheap prices, blamed the development on the dearth of liquidity and low confidence that have shrouded the Nigerian market in the past few years.
According to them, foreign portfolio drivers have continued to stay on the sideline due to the poor state of the capital market, while the fewer investors that are risk-averse patronise money market instruments.
They argued that the preference for the money market and debt instrument arises from the fact that returns on such facilities, which are loaned to government or corporate bodies, are guaranteed with high yields for the fixed period of their tenure, unlike stocks which are exposed to the vagaries of market forces as they are traded daily.
Indeed, the Nigerian equities market declined the most in the month of July with a loss of 7.5 percent, as investors continued to watch in anticipation of a positive catalyst.
The bearish trend ended the month of July effectively plunging the Year-to-Date (YtD) return on investment (RoI), into -11.81 per cent.
The key performance indicator of the Nigerian Stock Exchange (NSE), the All-Share Index (ASI), also dropped 7.50 per cent to close at 27,718.26 on July 31, from 29,966.87 points at which it opened trading for the month.
Meanwhile, market capitalisation for the period gained N302 billion to N13.508 trillion from N13.206 trillion, mostly attributed to Airtel Africa listing on the NSE on July 9, with a total of 3.8 billion units of share at N363, thereby adding N1.4 trillion to the equities market capitalisation.
The Chief Operating Officer of InvestData Consulting Limited, Ambrose Omordion, said there has been a shift from variable assets to more fixed-income assets by both foreign and local portfolio investors, who have been sitting on the fence since February this year because these asset classes are considered more secured despite narrow yields.
He linked investors’ appetite for money market instruments over equities to low liquidity, and the prevailing confidence crisis arising from political risk and persistent insecurity in the country, thereby worsening Nigeria’s already unfriendly business environment.
He noted that these factors have impacted negatively on the weak half-year earnings of quoted companies, which have fuelled the negative sentiments.
Omordion continued: “The risks in money market instruments are small that is why investors are looking that way. The more the Central Bank of Nigeria (CBN) makes conscious efforts to reduce the yields on treasury bills (TBs), and other instruments; it would make money market instruments less-attractive, and buoy investment inequities.
By the time the equities market recovers, all these funds will find their way back to the stock market
“Notwithstanding the disappointment, various stakeholders expressed over the ministerial list, all the 43 nominees have been cleared by the Senate. All eyes are now on President Muhammadu Buhari to assign them portfolios so that implementation of the 2019 budget can commence immediately, as they settle down for the business of governance and policy formulation.”
The President, Constance Shareholders Association, Shehu Mallam Mikail, noted that bonds and government instruments are already crowding out funds from the equities market, adding that because of the attractive coupon rate (interest rate), and frequency of payments, these instruments hold more promises for every segment of investors.
He added that high-interest rate, which is already taking money away from the capital market, will ultimately depress investors’ appetite for stocks.
The Publicity Officer, Independence Shareholders Association of Nigeria, Moses Igbrude, said many investors in the Nigerian capital market are still counting their losses from the equities crash.
He said: “For quite a while now, the prices of shares in the market have been falling, and there is low liquidity following investors’ apathy in the market.
“The president has made the ministers known and the Senate has cleared them until the government’s economic policy respond to the macro challenges, the fundamentals of this economy would remain weak.