UPDATED: Nigeria’s low yields position equities as credible alternative – Onyema
...says demutualisation of NSE in final stage ...calls for reforms around exchange rate unification, naira stability
The lack of high yielding investment instruments in Nigeria has drawn domestic institutional and retail investors to the equities market, according to Oscar Onyema, CEO, Nigerian Stock Exchange (NSE).
The CEO of the Lagos bourse made this known during his welcome address on Thursday at the ‘Investment and Capital Market Digital Dialogue’ by BusinessDay.
While the COVID-19 pandemic exacerbated foreign portfolio flight to safety, one of the factors that intensified the pressures on Nigeria’s foreign reserve and exchange rate, Onyema said local investors surprisingly rose to the challenge in sustaining equities market performance.
“The low yield environment has positioned the equities market as a credible investment option for domestic institutional and retail investors,” Onyema said.
According to NSE data, domestic investors have accounted for almost 60 percent of the trading activities in 2020 compared to the average of 51 percent in the last four years.
While NSE has witnessed a slowdown in equity capital raising due to the impact of the COVID-19 pandemic and decline in oil price, it has seen increased raising activities in the fixed income space as a result of the relatively low-interest environment.
Nigerian companies as of August 7, 2020, raised more than N559.77 billion through commercial papers, 103 percent higher than the N275.37 billion raised in March 2019. They issued the notes with an average interest rate of 7 percent, much better than the average 15 percent offered by commercial banks.
Also, the NSE data show in Q2 alone over N500 billion was listed on the Exchange as government debt.
”Despite obvious economic headwinds, the NSE All-Share Index, for example, rose by 16.39 percent in April, ranking it the second-best performing index in that month according to Bloomberg, ” Onyema said.
Meanwhile, the NSE All-Share Index at the end of August returned a month-on-month gain of 2.47 percent, and the equity market capitalisation is currently at about N13.2 trillion.
The stock exchange boss, who spoke for close to 20 minutes, giving hundreds of business leaders, market operators as well as investors present at the virtual event details of the development in the Exchange, said the ongoing plans to transcend the Exchange from one limited by guarantee to that owned by shareholders (demutualisation), will further increase investors’ confidence in the market and place the Exchange in the league of global peers.
It would also create more opportunities for investors’ participation, improve corporate governance, increase access to capital and drive innovation and technological advancement for the economy. The Exchange is already in its final demutualisation phase, he said.
While noting several challenges faced by investors, Onyema explained that policies around unification of exchange rate, resolution of the country’s FX liquidity crisis as well as naira stability would further boost both domestic and foreign investors’ confidence in the market as well as in government commitment to economic stability.
While lauding the government for its assent to the Companies and Allied Matters Act, which he said signalled hope for ease of doing business, he urged the Federal Government to embark on policies that would lighten the burden for companies hit by the COVID-19 pandemic.
Such fiscal and regulatory forbearance, he noted, includes reduction in tax burdens, delay in implementation of taxes, and targeted interventions to companies most hit by the pandemic.
He called also for the expansions of the framework for public/private partnership for infrastructure development.
For instance, prioritising the incorporation of the CBN Infrastructure Company (Infraco) and the subsequent listing of the N15 trillion infrastructure funds on the NSE for effective reporting, corporate governance and other global fund management standards.
Also, converting the road investment tax credit into NSE tradable tax credit notes to further incentivise private sector participation in the Executive Order 007 on road infrastructure development, will all assist in aiding capital market recovery, Onyema said.
He urged investors that while investing, they should strive to “stay in time in the market rather than timing the market.”