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Yields in the money market space and treasury bills in particular have continued to see a decline for the fourth consecutive week, leaving investors scratching their heads on alternatives to invest in or where to get favourable returns. However, analysts alongside some financial advisors have outlined ways investors can maximize returns on investments despite the downward trend in interest rates.
“Given the declining interest rate environment, investment in equities becomes the best bet and are more attractive especially given the fact that oil prices are rallying,” a financial expert who craved anonymity said.Nigerian stocks are up 6.37 percent year to date.The average daily value of stocks traded across all products on the Nigerian Stock Exchange (NSE) increased by 96.31percent in Q1, 2018 to N6.98 billion ($22.84 million), up from N3.56 billion in the corresponding first-quarter period of 2017.
The dividend yield for listed stocks in the 52-week period ending March 29, 2018 was 4.61percent.
Despite recent decline in stock market breadth, analysts at Lagos-based Afrinvest Securities say outlook for the market in the near-term remains largely positive.
The NSE All Share Index (ASI) reached a nine-year high in January 2018 as the bull-run which began in 2017 received greater push from the recovery in global oil prices, increased domestic reserves, greater FX market stability and declining inflation.
At the end of Q1 2018, the average price/earnings (PE) ratio of the Exchange’s listed equities stood at 24.91 compared to 18.83 in the previous year; while the equity turnover velocity also increased by 1.44 percentage points to 11.72percent, from 10.28percent in Q1 2017.
Yields on One-year government Treasury bills are currently a short crawl away from 10 percent,
from as high as 22 percent last year , on the back of a supply cut back by the federal government to manage its rising debt service costs and free up credit to the private sector.
The CBN issued N38 billion in Treasury bills at a primary market auction on May 03, for rates between 10.7 percent and 11.1 percent, according to data from the central bank website.
This sustained decline has been caused by a number of factors, including a reduction in the rate, volume sold and the frequency of sales of open market operations (OMO) treasury bills by the Central Bank of Nigeria (CBN).
“Investors can also take their eyes to money market mutual funds which is a collective investment scheme that can bring favourable returns especially for the retail investors,” Ayodeji Ebo, Managing Director at Lagos based Afrivest securities said on phone.
“Money market funds are an excellent way to maximize returns on your short term investments as they are safe; provide easy access to your funds, while providing maximized returns on your investment. With the money market fund, you are also able to position for other investment opportunities, bearing no penal charges upon liquidation,” Ebo added
Some major money market funds now available for investors include the Stanbic IBTC money market fund, FBN money market fund, ARM money market fund, Abacus money market fund and the AXA Mansard Money Market Fund among others.
Money market funds account for over 74 percent of Fund management and have assets under management worth some N409 billion, according to data obtained from the Securities and Exchange Commission.
Stanbic IBTC controls major part of outstanding money market funds with about 53 percent worth N215 billion, followed by FBN Capital Asset Management Limited with 25 percent worth over N105 billion.
Asset and Resource Management CO Ltd, Axa Mansard investments and Investment one Funds Management limited accounts for 9.80 percent, 3.94 percent and 1.73 percent worth N40bn, N16bn and N7bn respectively.
Other interesting trend analysts have pointed to is that rates at the OMO auction typically close higher than Treasury Bills of corresponding maturity dates in the secondary market and this often presents an opportunity to get more value for investments.
OMO auctions are conducted at the discretion of the CBN, and announcements are made within a short period during trading hours
Commercial Papers (CP) also present opportunities to lock in at higher returns in a low rate environment. Nigerian Breweries CP is currently on offer and others are in the pipeline.
The rate of inflation has continued its downward trend for fourteenth straight month since late last year where it peaked at about 18 percent.
According to the Nigerian Bureau of Statistics (NBS), inflation currently stands at 13.34 percent (March 2018) down from 15.13 percent in January 2018, with the potential to remain on this trajectory.
The Monetary Policy committee (MPC) left its policy rate at a record high of 14 per cent since July 2016 in its first meeting this year, pointing to higher inflation which is well still above its target of a single digit.
As a result of this, the CBN has hinted at a more accommodative posture by taking actions to reduce interest rates in the market.
MICHEAL ANI
