The Nigerian equities market remained on the downbeat in 2016 due to the recession which impacted economic growth adversely. The economy however made some recovery in Q2 2017 following the introduction of the I&E window by the CBN; a move by the Central Bank of Nigeria which encouraged some level of FPI inflows, thereby boosting reserves and economic activities.
Consequently, the market closed up at 42.03% at the end of 2017. By 2018, the market declined by -17.81% as foreign portfolio investors exited the emerging and frontier regions following a hike in US Fed rate, US and China trade wars and uncertainty around Brexit in addition to slow economic growth and increasing debt profile in these regions. Investors, foreign and local have largely remained on the side-lines, still in search of clear cut policies to guide investment decisions.
In analysing the current performance of the Capital Market, it is pertinent to note that investor sentiment is still very weak as none of the above-mentioned factors have changed significantly. Appetite for Nigerian assets has not been fantastic and the equities market has been the worst hit. Even our local institutional investors would rather invest in the fixed income market than the equities market due to share price volatility as it impacts their valuations.
Total capital importation into the Nigerian economy grew 35% y/y to US$8.5bn in Q1 2019. The chunk of this inflows c.84% was channeled towards Foreign Portfolio Investments (FPIs). The breakdown of the inflow from the FPIs portion was split; 83% to money market instruments; equities was 9% and 8% channeled to bonds.
Equity instruments are on a downturn, although there has been an increase in fixed-income investments especially from foreign investors as the above data has shown. With relatively stable and competitive interest rates, more investors would be attracted to fixed income instruments such as Money Market Instruments – Treasury bills, Commercial papers, Eurobonds, Corporate and Sovereign Bonds.
There is also a growing interest in investment options in US Dollars due to a growing local appetite for currency diversification – which has led to firms like FBNQuest Securities creating solutions to allow investors to earn an income in foreign currency.
According to Fiona Ahimie, Managing Director, FBNQuest Securities, the Firm is committed to improving the narrative of the market performance by providing quality research reports and valuable insights on a continuous basis to clients to aid their investment decisions. “We advise investors to allocate a portion of their investible funds to equity solutions, in line with their risk appetite especially at these times when the share prices of many companies are testing new lows, as equity markets are expected to provide higher returns over the long term. As more and more investors apply the concept of asset allocation, we expect to see growth in allocations across our solutions in this asset class.”
The capital market’s performance remains a crucial aspect of the growth of any nation’s economy, especially as a catalyst for growth. It mobilizes long term savings/capital from individuals and institutional investors, for users such as governments and the private sector. Increased Public Private Partnership investments in critical infrastructure and improvement in the implementation of capital budgets, would address some of the infrastructural deficiencies in the economy, as this could reduce the average cost of production and enhance economic growth.
Empirical studies have shown that sustainable growth in the capital market can be attained through technological development and more friendly business policies which support new and existing businesses.
She further highlighted that Nigeria is characterised by a growing need for investment management services, which has led to more players offering investment management services to the public and private sectors leading to rising competition.
“As such, being a professional service provider, FBNQuest Securities focuses on building innovative and best in class solutions as well as offering seamless client service to stay ahead of competition. We also work to ensure that the performance of our Funds remain competitive thereby boosting investors’ confidence. We do this by making sure we are disciplined across the investment management value chain, that is, from extensive in-house research, good Risk Management practices; to portfolio management and client services.
“Factors we consider when choosing instruments into portfolios include, but are not limited to; market dynamics and realities, regulations, projected risk and returns and the client’s investment profile. We are also committed to investors’ education as we support various initiatives by the regulators in this regard, including organized workshops and also periodic FBNQuest organized roadshows to both local and offshore investors.
“In conclusion, it is our belief that with more investor awareness and investor confidence in the integrity of the market, coupled with clear-cut economic policies and demonstration of increased accountability by the Federal Government, the capital market will take its rightful place as a source of infrastructural and economic development in the nation.”
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