Investors’ demonstration of preference for mutual fund asset classes over equities, due to risk induced by negative sentiments may have spurred about N10billion in its value addition, BusinessDay analysis of the market shows.
The development on the other hand, resulted in a rough ride for the equity buyers with a loss of about N1.2 trillion in the first quarter ending March 31, 2016.
Investors’ aversion to risk at the Customs Street bourse, resulted in value addition in the collective investment space over a seven-week period tracked by BusinessDay.
Nigeria’s Initial Public Offerings (IPOs) market which would have enticed liquidity in the stock market dried-up in this same period, as many prospected companies showed there are more alternative funding avenues than Customs Street capital.
Fears of Nigeria’s economic slowdown, increased volatility in the FX market, falling oil prices and the current equity market turbulence have all contributed to the slow start to the year for IPOs.
“While equities have seen some momentum in recent weeks from speculation around full year 2015 dividend pay-out by the listed corporates, on-going bearish run suggests that cycle is gradually grinding to a halt. Hence, we expect to see some more profit booking by investors in the near term, as the market begins search for new triggers”, said analysts at Lagos-based United Capital.
Mutual funds are investment vehicle that are made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets. The funds are operated by fund managers who invest the fund’s capital and attempt to produce capital gains and income for the fund’s investors.
From N283.356billion as at February 5, the value of mutual funds asset at the Securities and Exchange Commission (SEC) rose to N292.153billion as at March 24 driven by increased liquidity into money market funds.
Amid a sliding stock market occasioned by FX pressure, declining oil prices, and unimpressive results, analysts say greatest mutual fund managers produce long-term, market-beating returns, while helping many individual investors build significant nest eggs.
Our trend watch on the performance of SEC-regulated mutual funds shows that the value of Umbrella Fund rose from N7.158billion as at February 5 to N8.240billion as at March 24.
In the same period, increased investment in Islamic/Ethical Funds impacted its value from N4.360billion to N4.507billion; Mixed Funds rose from N23.057billion to N23.388billion; Fixed Income Funds increased from N10.427billion to N11.258billion.
Also, Equity Based Funds garnered value from N12.452billion to N12.715billion. Real Estate Funds increased from N45.281billion to N45.553billion. Money Market Funds rose from N178.683billion to N173.008billion; while the value of Bond Funds increased to N7.804billion from N7.609billion.
Trading began this year at the Nigerian Stock Exchange with equities market capitalisation valued at N9.850trillion and NSE All Share Index (ASI) at 28,642.25 points but it closed the first quarter at N8.704trillion and 25,306.22points respectively.
Analysts said the recent tightening move by the Central Bank of Nigeria (CBN) led to renewed risk-averse disposition of equity investors.
“The stock market has been fluctuating and mainly driven by earnings announcements. The lack of clarity pertaining to Nigeria’s exchange rate regime is making companies uncertain about making key investment decisions”, said analysts at Financial Derivates Company Limited.
“While investors’ optimism is fast diminishing and the the domestic economy projected to experience slow growth, the prospect of a sharp recovery in the market remains dim; even as investors have shifted positions in anticipation of other market surprises,” Lagos-based research analysts at Dunn Loren Merrifield, said in their recent equity brief.
With IPOs particularly sensitive to volatility and general negative economic sentiment, a wait and see approach and multitracking have predominated, as issuers wait for market conditions to improve or seek alternatives such as Commercial Papers (CPs) issuance which is currently faring better than IPOs.
Iheanyi Nwachukwu
