In what seems to be the confirmation of gradual shift from the equity market to the bond market, the market capitalisation of listed bonds on the Nigerian Stock Exchange (NSE) surpassed that of the equity market by N195.94 billion. This happened less than twenty four hours before MTN Nigeria is admitted to the main board of the NSE.
The board of the Nigerian Stock Exchange will on Thursday May 16 admit MTN Nigeria on the main board of the Nigerian bourse at a price of N90 per share. The company will address stakeholders thereafter.
This development is of interest to stakeholders because this will be the first time in a while that the market capitalisation will be tilted in favour of bonds, as the NSE has traditionally been an equities market. Specifically, when transactions ended on May 15, 2019, the market capitalisation of equities closed at N10.63 trillion compared with N11.72 trillion on the last trading day of 2018, implying that investors so far have lost N1.09 trillion year-to-date.
Years back, the equity market dominated the market capitalisation on the Nigerian Stock Exchange. In December 2013, equities listed on NSE were worth N13.23 trillion as against bonds with a value of N5.85 trillion. By same period 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.
But signs that investors were opting for safer instruments emerged in 2018 when at the end of the third quarter, the market capitalisation of equities was valued at N11.97 trillion while the bond market was much closer at N10.37 trillion. At the close of business on May 15, 2019, the market capitalisation of equities was worth N10.63 trillion while market capitalisation of bonds was valued at N10.82 trillion.
However, analysts are of different opinions as to the implications of the NSE turning to the bonds market which may happen if the current trend continues.
“It shows the increasing growth of the fixed income market, particularly as it continues to attract foreign portfolio inflows. Incidentally, the appetite of both local and foreign investors for equities is at historic-low local, thus reinforcing the bearish trend and consistent weakness in stock prices and attendant valuation of the market,” said Rasaq Abiola, head investor relations at the United Bank for Africa (UBA).
“Nonetheless, the imminent listing of the MTN should support the equity market capitalisation, even so it may not translate to a bull run.”
On her part, Kemi Akinde, a senior analyst at Meristem Securities opined that there is no direct implication for the equities market.
“There is no direct implication for the equities market, especially as trades are not carried out based on the market capitalisation of different markets. The listing of two new bonds has contributed to this and we expect this capitalisation to tamper by next month as the June instrument matures. Also, not much activity is typically recorded in the bond market when there is no primary auction,” she said.
“The equities market however is very liquid and at a very low point. The capitalisation can only sink further before positive sentiment returns and we see the market cap of equities market overtake the bonds market again. The listing of MTN Nigeria will take the market cap up by N1.83 trillion, closing the gap. MTN also hinted on a public offer at a later point and this should further raise the equity market cap,” Akinde said.