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Fixed Income Policy: CBN boosts investors’ value by over N197bn

By Peter Egwuatu & Nkiruka Nnorom

Stockbrokers and stakeholders have stated that the upsurge currently experienced in the stock market was as a result of a drift in investment by the banks, Pension Funds Administrators, PFAs and other high net worth investors following the Central Bank of Nigeria, CBN’s fixed income policy released recently.



Consequently the market capitalisation(investors’ worth) increased by over N197 billion from N12.830 trillion since the policy was introduced on October 23, 2019 to close at N13.027 trillion last Friday.


The stockbrokers who confided in Vanguard stated that drift by banks, PFAs and other high networth investors to the Nigeria equity market was attributed to the recent CBN’s policy on fixed income securities that barred non banks, individuals or cooperates from participating in Open Market Operation, OMO.


Some stakeholders stated that the upsurge may not be sustained except there is significant improvement in the macroeconomic environment.


Chairman of the Chartered Institute of Stockbrokers, CIS 2019Annual Conference Organising Committee, Abiola Adekoya, said: “The policy action taken by the CBN has contributed in boosting the stock market as banks, PFAs and other high net worth investors have boosted the market by over 70 percent in recent times. 


The restriction of key corporates, such as PFAs and Insurance companies, from participation in OMO has likely free up excess investable cash for allocation to assets beyond fixed income alternatives.
“We, therefore, see legroom for some flows into fundamentally strong equity names as treasury yields moderate.

 
The potential for capital gains in fundamentally sound counters further enhances the appeal of the equity market.”



Chairman of New Dimension Shareholders Association of Nigeria, Mr. Patrick said: 
         “The upsurge in the equity market may not be sustainable except there is significant improvement in the macroeconomic environment that would enhance purchasing power.


“Meanwhile, analysts were also of the view that the performance of the market last week was a reaction to a limited outlet for investments given recent CBN’s policy directives limiting domestic participation in the market.


“As the effects of the CBN’s recent policies in the fixed income space continue to reverberate across the capital markets, investors flocked to the equities market in search of yield and drove the domestic bourse to its largest weekly gain since the week of August 23, 2019,” said analysts at Cordros Capital.


According to them, the market may continue to benefit over the short-term, especially in the face of lower yields in the fixed income market.


Corroborating, Lilian Olubi, Chief Executive Officer, EFG Hermes Nigeria, opined that the directive may likely continue to have a positive impact on the equities market, saying that: “corporate organisations like pension managers would need to divert more funds into equities market investments. We intend to see more bite into the equities market, henceforth, as a result of this.”


On sectors, the banking and industrial goods sector rose 6.8 percent and 3.2 percent respectively, while the consumer goods sector appreciated by 2.6 percent. Conversely, the oil and gas and insurance sector declined by 1.8 percent and 0.6 percent respectively.

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