The fixed income market continues to attract interest from investors who are not satisfied with the returns on investments from the equity market. Market sentiment in the equity market indicates that barring any unforeseen circumstances, the Nigeria’s equity market will close in the negative territory by year end. This is because when transactions ended last week Friday, the overall market performance was -14.6 percent year to date.
The declining tempo in the equity market has morphed into a gain for players in the fixed income market. This manifested in the rising value of the market capitalisation of the listed fixed income securities. Last week Friday, the bond market capitalisation on the Nigerian Stock Exchange (NSE) closed at N13.15 trillion, implying that it is now higher than the equity market by N187.31 billion. The equity market on the other hand ended the week at N12.96 trillion, while the ETF market capitalisation closed at N6.47 trillion.
“The strong buy pressure in the bond market has raised the bond prices above the premium, which explains why the bond market capitalisation is higher than the equity market. The switch in market capitalisation might be there for about two months or so because there is nothing in the offing that will provide that push in the equity market”, Oise Ajayi, associate, Meristem Securities Limited.
Signals that the bond market is fast becoming the toast of investors emerged on May 15, 2019 when the bond market capitalisation surged higher than equity’s by N195.94 billion, few hours before MTN Nigeria was admitted to the main board of the NSE.
Another factor that has contributed to this is the continuous southward movement of the prices of equities listed on the NSE. Year to date, the NSE All Share Index (ASI) has depreciated by 14.6 percent resulting in ASI closing the week at 26,855.52 points. The NSE Consumer Goods Index and NSE Oil & Gas Index have depreciated the most by 26.4 percent and 22.6 percent respectively.
Before the recent surge in bond market capitalisation, the equity market accounted for over two-thirds of the NSE’s market capitalisation. In December 2013, equities listed on NSE were worth N13.23 trillion as against bonds with a value of N5.85 trillion. In 2014, the market capitalisation of equities was N11.49 trillion while bonds were valued at N5.38 trillion. In December 2016, the equities market capitalisation was N9.26 trillion while bond market capitalisation was N6.93 trillion.
The current trend in the bond market may not be unconnected with the yields of some federal government bonds. The 12.738% FGNSB Dec 2020 presently has a yield to maturity (YTM) of 44.56 percent. The 11.098% FGNSB Jan 2020 has a yield to maturity of 42.12 percent. The 11.175% FGS Oct 2020 has YTM of 40.20 percent. The 12.390% FGS Nov 2020 YTM is 45.05; FGS Dec 2020 at 44.24 percent.
The quoted equities with better returns than the bonds listed above are Cornerstone Insurance, 265 percent; C & I Leasing, 234 percent; Chams, 90% and BOC Gases, 45.4 percent.
TELIAT SULE
