Business
Investors dump equities for money market
By OKEY ONYENWEAKU
When a neighbourhood tree begins to make the unusual sound of falling, those who find themselves either close to it or under it quickly scurry for their dear lives.
Experts also believe that when there is a negative yield curve in the financial market there is a migration of financial assets from the long-term instruments in the capital market to the short- term instruments of the money market. Whereas it is a bit difficult to conclude that the equities market may have a bumpy ride this year, many investors appear to be voting for staking their funds with money market securities for higher returns. Indeed, returns are the most important attraction to any investment.
‘’When the returns on any financial instrument is high and attractive, investors naturally gravitate to that area to make a kill unlike when it is otherwise’’, a former Managing Director of one of the big banks who would not want his name in print told Business Hallmark.
There is a consensus that the Nigerian government has indicated that it will favour higher borrowing this year to finance its budget deficit (gap) which stands at about N1.86 trillion. By the release of that information, many investors have been given a tip as to where to expect higher returns and they are naturally drifting in that direction to enjoy the anticipated fall-outs.
Experts list money market instruments to include treasury bills, commercial papers, bankers’ acceptances, deposits, certificates of deposit, bills of exchange, repurchase agreements, federal funds, and short-lived mortgage- and asset-backed securities.
For the equities market, many analysts and investors mention stocks and other related instruments that are long term. In the course of the year however, the mouth- watering returns in the money market instruments which include mainly treasury bills and debt income market assets will range from 14 per cent and above and even higher for those who trade.
This return is almost certain except Nigeria ceases to exist. But nobody can predict with accuracy the future of the equities especially when the federal government would deliberately favour the money market by borrowing hugely from it and crowding out the private sector.
After gravitating significantly to the red zone (-17) per cent at the close of business in 2018, the equities market has continued to suffer from the weakness of an economy in which Gross Domestic Product (GDP) grew by a paltry 1.9 per cent last year.
Already, the market is still very weak at -0.93% gains Year to date (Friday March 22, 2019) while the major index ASI reveals a year on year+254.04 per cent positive as at March 22, 2019. At the close of business on Friday March 22, 2019, the market (ASI) gained 0.82 per cent to close at 31,139.35 basis points.
The negative trend recorded this far in the year seems to be taking a cue from the equally discomforting end of 2018 figures. Industry analysts who are familiar with the market terrain in Nigeria are aware that the market closed the year 2018 in about -17 per cent negative from the 42 per cent gains of 2017.
This contrasts with the giant leap of the equities market in 2017 when ASI closed at 38,243.19 basis points. Its capitalisation also closed on a high at N13.609tn in the same 2017. But the story was different in 2018 as investors in the equities market lost N1.89tn last year amid instability in the market.
On the contrary, money market investments have already started to excite and attract investors, both domestic and international, because of their seemingly mouth-watering returns. This swoop on treasury bills and Federal Government bonds returned immediately after the Presidential Elections when investors felt safer given the heightened uncertainties before the exercise.
A few weeks ago, the Central Bank of Nigeria (CBN) held its first Primary Market auction for the Month of March which was for instruments across three tenors: 91-day, 182-Day, and 364-days. There was also the open market operation (OMO) auction for only the 91-day tenor during the same week.
In Treasury bills’ PMA, analysts at Afrinvest Securities Limited, said that investors’ interest was very high as all tenors were oversubscribed with bids -offers settling at 2.87 times,3.32 times and 7.67 times for the 91-day;182-day and 364-day instruments.
Similarly, the analysts at Cowry Assets Management Limited revealed in their report that foreign portfolio investors are swooping on these financial instruments.
A lot of them came in and were betting on Nigeria’s instruments and those of them that came in to buy one-year bills at 15 per cent, already made a lot of money. The kind of returns you get in Nigeria, you can’t get it anywhere else in the world’’ said Mr. Kunle Ezun, who trades with Ecobank Nigeria.
Even at that the Federal Government of Nigeria will auction by subscription N100 billion worth of bonds on March 27, 2019.
The Debt Management Office (DMO) in a circular on its website last week disclosed that it was now selling the five-year re-opening bonds of N40 billion that is expected to mature in April 2023 and that it was offering them at 12.75 per cent.
It explained that the seven-year re-opening bonds, also of N40 billion, and which is expected to mature in March 2025, would be auctioned at 13.53 per cent.
It added that the 10-year bonds, also re-opening, of N20 billion which would be due in Feb. 2028, would be auctioned at 13.98 per cent. The borrowing of money from the financial market is likely to continue until Nigeria is able to fund its budget gap.
A Lagos-based analyst, Dr. Afolabi Olowokere of Financial Derivatives Company Limited, believes that both markets (Money and Equities market) were in a good position to remain active and earn investors returns. But he noted that many investors would prefer the fixed income instruments which offers not less than 14/15 percent.
‘’The equity market will do well still if you enter early. But it is certain that fixed income instruments will do well given that the government will borrow from the financial market’’, said Olowokere.
Another respectable analyst, the Managing Director of HighCap Securities Limited, Mr. David Adonri told Business Hallmark via a telephone interview that whenever there is a negative yield curve in the financial market there is a migration of financial assets to short term instruments in the money market.
While TB’s and debt instruments are returning about 13,14 and 15 per cent annually, the equities market is still struggling, trying to push against the vagaries of the challenging macro-economic environment.
Looking down the line, economists do not expect any magic from a country with a mono-economy and which is yet to cultivate other sectors enough to grow her economy.
With a dismal growth of 1.9 per cent in 2018, the Nigerian economy unimpressively lost out on meeting the set target of about 3 per cent. In a mono-economy that is substantially dependent on the vagaries of the price of crude oil for revenues, not much has been put in place to galvanise productivity in other sectors for significant growth.
Sadly, this is even when the country’s population growth rate is put at above 3 per cent annually alongside a corresponding unemployment rate of 23 per cent. These continue then to defy the Economic Recovery and Growth Plan (ERGP) which industry analysts also doubt is not even being implemented even as it betrays no clear vision.
Whereas agriculture, the services and manufacturing sectors inched up in Q4, there are still challenges ahead, said market observers who also noted that even these have hardly eased the continuing threats of the rising unemployment wave among the youths.
Both international and domestic investors have also complained about multiple exchange rates and multiple taxation and even higher taxation on tobacco and alcohol that have bruised firms in that sector among others.
Whereas the government under President Buhari believes it has delivered on its three major promises, namely security, tackling corruption and growing the economy, analysts are quick to point out that there are still mounting incidents of escalating acts of aggression by the Islamist sect, Boko Haram, alongside the menace of the Fulani herdsmen which has barely been tamed. In addition, they observed, the economy still lacks the deserved propulsion to grow evenly while the anti- corruption war is just a surface move.
