Nigeria’s equities and fixed income markets witnessed unique increased demand, this week, in-spite of uncertainty of outcome of the Presidential election this Saturday.
At the stock market, attractive valuation on most equities spurred stock-buyers’ appetite, while institutional investors and pension funds are fueling demand at the bond market.
In three trading days, stock value rose by N185billion to N9.974trillion from N9.789trillion at the beginning of this week; while the NSE All Share Index (ASI) also gained 555.68 points or 1.89percent.
Though, the Bonds market traded down yesterday as the average yield increased by 4 basis points (bps) to 15.8percent. Trading was mixed, with the highest demand for the Jul-2030 note. In the preceding day, the Bond market was bullish as average yield in the space decreased by 25 basis (bps) to 15.8percent, same as last Monday when demand in the fixed income was strong, driven by attractive yields.
While increased demand impacted positively on equities’ prices, attractive yields encouraged investors’ strong demand in the fixed income space.
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Investors had before now taken guarded position in the financial markets as decline in foreign reserves, occasioned by drop in oil price, volatile forex market, and ambiguity over outcome of upcoming general elections added to the country’s rising risks perception.
“Nigerian stock market certainly remains an attraction for investors. I do think that initial concerns raised by investors have been addressed. I do expect that the market will continue to remain positive,” said Andrew Tsaku, analyst at Lagos-based Investment One Financial Services.
Analysts said investors and traders in the markets were beginning to position themselves ahead of positive returns post-election.
The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) left its monetary policy rate and stance unchanged- in line with a widely anticipated outcome.
“Technical readings of market momentum still show scope for further speculative gains before the end of the week. Also, bargain hunting should continue on the back of attractive valuations,” said analysts at United Capital plc.
Investment analysts at Lagos-based Financial Derivatives Company expect volatility to characterise stock market activities as investors remain cautious given the level of economic and political uncertainty.
“In addition, bargain hunting, improved security and corporate action may spur further rallies in the market. However, we expect momentums to be short-lived as most investors are likely to remain cautious, pending the results of the Presidential election,” the analysts said.
Before now, investment analysts at Meristem, anticipated a reversal in current system liquidity as investors took advantage of discount bonds “giving the outlook of a probable resurgence in the market post-elections.”
On equities which had risen in improved deals, the analysts expected a lull until after the elections on the 28th, “so that good buying opportunities will be presented.”
“Given that one of the major risk factors which have depressed market returns in 2015 will be gone after the elections, this could be the final opportunity to take position at such attractive prices,” Meristem analysts said.
“The Nigerian economy and its financial system continue to face a myriad of challenges. Some of these are based on economic fundamentals arising from declining oil prices and the devaluation of the naira. Others include foreign investors’ divestment from the country and excess liquidity concerns. Hence, the need for measures aimed at restoring economic stability, as well as enhancing investor confidence in the financial system”, Financial Derivatives analysts said.
Ahead of the election, Standard & Poor (S&P) reduced Nigeria’s credit rating down one notch, from BB- to B+. The rating agency, which had earlier placed Nigeria on negative credit watch in February, cited the impact of seven months of declining oil prices and rising political tensions in Africa’s biggest economy as factors.
IHEANYI NWACHUKWU
