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Money market edges out equity as bearish trend persists



Non-oil export proceeds to attract rebate - CBN


The earnings season in corporate Nigeria has not been strong enough to reverse the market from bearish move as money market continues to edge out equities for significant part of the first quarter trading session. Tracking the index and volume of trades, it has been observe that the investing communities have shifted focus into the fixed income market as yield from money market instruments excite both local and foreign investors.
The stock market witnessed more bearish run in the first quarter, as investors lost significant chunk of their fortune on the back of massive selloffs, increased risk and inability of earnings season to reflect overall performance. Though some analysts said that yields are moderating following a shift in underlining performance but equity side of the market is yet to benefit from the moderation in rates.
BusinessHallmark research gathered that attractive yield associated with money market instrument like Treasury Bills, FGN Bonds and others instruments have encouraged a “move away” experience. The numbers show that investors from equity segment of the financial market have significantly adjusted portfolio, and positioned strongly in fixed income instrument as bearish trend in the equity market persists.
It has been observed that following the influx of foreign portfolio Investments (FPIs) in the money market, yield across fixed instruments have been moderating, but the segment performance still stand stronger compare with return from equity market. Investors in the equity segment of the financial market have lost more than N700 billion since the beginning of the year.
Meanwhile, local investors have been unable to fill the gap in the equity market since foreign and institutional investors bailed out from equity investment pre-election period. Key market participant adjusted to the nation’s electioneering to ensure safety of their funds but remain by the side with expectation that stock performance would reflate.
Data from the Nigerian Bureau of Statistics show that at the close of financial year 2018, the nation recorded 0.5% growth in foreign direct investment (FDI) as percentage of the gross domestic products. FBNQuest in its analysts noted that the striking aspects of the financial accounts in balance of payment for the fourth quarter of 2018 were the lower, but still witnessed respectable inflows from foreign portfolio investors (FPIs) and the paucity of foreign direct investment.
“The gross inflows from FPIs, that is before investment by Nigerian residents concentrated on local FGN markets” FBNQuest said.
FMDQ data showed record net inflow at the Nigerian Autonomous Foreign Exchange Rate Fixing (NAFEX) of $3.93 billion in the two weeks to 08 March, of which funds for FPIs accounted for $3.17 billion.
FBNQuest said, “NSE is the weakest performer year to date of the three stock markets the firm tracked in Sub-Saharan Africa having descended into negative territories in the past weeks”.
However, analysts said that the alteration that is currently undergoing in the financial market is on the back of uncertainty in policies as well as investors perception and psychology side which is key to overall performance. They say the decline in the market capitalisation is due to low sentiment, failure of the earning season to support market performance and dividend adjustments.
It may be recalled that on the last trading day in 2018, Nigerian Stock market capitalisation closed the year at N11.7207 trillion. Meanwhile, on the first trading day in 2019, investors fortuned dropped by N134 billion. The all share index (ASI) fell from 31,430.50 in January to 29,000. Since the beginning of the year, sentiment has been generally low. Initially, this was attributed to electioneering. Meanwhile, at the close of trading on Friday, market capitalisation was locked at N11 trillion.
Some market observers also said that the 2019 earning seasons failed to influence market performance in positive direction, and shareholders as well as other interested investors are scared of seeing market capitalisation dropping as it nears N11 trillion market. The market sentiment has been low, with All share Index hovering below the 30,000 psychological benchmark.
Though the economy recorded improve foreign portfolio investment in 2019, but the funds were mostly channeled into fixed income market. Many institutional investors moved funds into the money market to ensure stability as pension fund clocked about N9 trillion in the first quarter of 2019. Significant part of which was invested in government securities and less than 8% was allocated into equity investment.
The attractive yield also led banks to shy away from lending as many pitched tent in investment in securities to reflate performance by closing gaps in losses from declined loan books. Some Tier 1 capital banks were noted to have muted lending but are among strong players in the fixed income market.
Though, a rebound is expected, Jide Famodun, Financial Analyst at MarketForces Africa said, as yield has significantly moderated. Treasury Bills and other money market instruments have lost some basis points but players are staying glued meaning that sentiment in the equity is quite low.
Of the N63.243 trillion market turnover recorded by FMDQ in the first quarter of 2019, more than 39% were Treasury Bills traded. The breakdown of the number indicates that TB valued at about N25 trillion exchange hands while FGN Bonds has N3.232 trillion of the turnover.

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