Following the restriction on individuals from trading in the Open Market Operations (OMO), local investors now invest their funds in equities market of the Nigerian Stock Exchange (NSE) and foreign exchange market, analysts at EFG Hermes have said.
They expressed in a report that local non-banks like Pension Fund Administrators (PFAs), individuals, companies, Non-Bank Financial Intermediaries and state governments owned N7.5 trillion of the CBN bills as at September 2019 (before the CBN decision), which is equivalent to 42per cent of the total.
According to the Investment Bank, PFAs owned N2.3 trillion in CBN bills at the end of September, leaving N5.1 trillion in the hands of other local investors to be reinvested as these CBN bills mature.
The report stated that “Some of this money will go into equities, but mutual fund data for the fourth quarter of 2019 show a strong preference for fixed income in Naira and Dollar over equities.
“Money market funds alone saw inflows of N160 billion in the three months after the CBN decision on OMOs.
“We note that there were also significant flows into bond mutual funds, many of which are entirely or partly focused on fard currency paper-like Eurobonds.
“We think some locals that had been blocked from the primary OMO market from late October 2019 actually bought from foreigners in late 2019.”
The report also stated that the equity market benefited from the ban, as the market rallied strongly, with blue chips outperforming, and the all-share index up by 9.2per cent between November and January.
Analysts at EFG Hermes said that the equities rally might also have been driven by the seasonal hunt for yields by investors as blue chips usually won’t pay final dividends until March/April.
Chief Research Analyst, EFG Hermes, Simon Kitchen explained that the surge in the equities market at that time coincided with the seasonal rally in Nigerian stocks ahead of the dividend season, and it is expected that the market will continue to consolidate as dividends are paid in March-April this year.
“We have looked at the performance of high-yielding stocks in the run-up to final dividend distributions over the past 10 years.
“Expectedly, we see a sustained rally in the three months before dividends are paid, though with periods of profit-taking; more surprisingly, stocks continue to perform in the weeks after the ex-dividend date, perhaps as dividends are reinvested,” Kitchen said.