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Investors in financial markets are exposed to all sorts of risks. The financial market is hardly ever stable, as the prices and values of assets fluctuate regularly; therefore, most investors who are seeking to maximize returns will move from one asset to another, depending on market conditions.

The setting in which changes in investment activity are in response to the economic situation is known as Risk-On-Risk-Off. In other words, a risk-on-risk-off situation occurs when asset prices are dictated by changes in investors’ risk tolerance.

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What is a Risk-On Market?

This is a situation where investors have a high-risk appetite and are optimistic about the economy, therefore, they bid up to the prices of assets in the market.

It is assumed that when the stock market has been performing well for a long time, the risk is on. This is because investors feel that the market is being supported by strong fundamentals, therefore they perceive less risk about it and its outlook so they are willing to invest in assets whose returns are uncertain.


 Features of a risk-on market

  • Optimistic Economic Outlook
  • Expanding Corporate Earnings
  • Accommodative Central Bank Policies
  • Booming Stock Market Performance

What is a Risk-off Market?

This occurs when investors are uncertain about overall market conditions, therefore investors move from risky assets and put their monies into safe investments. The belief of these investors is that the outlook of the economy is bad therefore they prefer to put their money into assets whose returns are not expected to be excessive, but provide downside protection to portfolios during times of distress.

 Features of a Risk-off Market

  • Contracting or slowing economic data
  • Uncertain Central Bank Policy
  • Investors rush to safe investments
  • Widespread corporate earnings downgrades
  • Pressure on local currency

Why Nigeria is presently Risk-Off

Poor Stock Market Performance

The stock market performance this year hasn’t been encouraging, The NSE All-Share Index which tracks the general market movement of all listed equities on the Exchange is down is down 13.9%, year to date.

 The chart below shows the movement:

Standard chartered

Investors Rush to Safe Investments

The major feature of a risk-off environment is that investors jump from risky assets and pile up in safe-haven investments like the Nigerian Treasury Bills, Nigerian FGN Bonds and other safe assets.

Standard chartered

According to Stanbic IBTC, the total offshore holds in Nigeria (Equities and Fixed Income) rose to $27 billion in Jun from $26.8bn in May and most of this increase was from fixed income securities which is estimated to be around $20bn. In addition, offshore holdings in Equities is down about $4bn to around $6bn from a peak of $10bn in February.


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Although, the CBN’s view is contrary, as the apex body estimates that $15bn foreign fixed-income funds are held onshore.

However, what this shows is that investors’ investment appetite tilts towards the risk-free fixed income securities.

Restrictive /Uncertain Central Bank Policies

New policies by the CBN, such as restricting official foreign exchange for importation of certain items, are giving stakeholders the perception that there is a high level of control over the banking sector. The Apex body is expected to be an independent body, therefore the consequence of this is that it sends a wrong signal to outside investors on the viability of putting funds into the Nigerian market.


In addition, a recent court ruling in the UK granted a gas firm the right to try and seize $9bn in assets from the Nigerian government, and fears are that this amount which represents about 20% of Nigeria’s FX reserves will result in slower growth and higher inflation.

At the last Nigerian Treasury Bill auction which was oversubscribed, the highest subscription was recorded for the 364 days Bill, as investors sought for the 1-year bill as the Naira weakens.


Risk-on: Investors are taking risks.

Risk-off: Investors are not taking risks.

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