The Central Bank of Nigeria (CBN) policy restricting local non-bank corporates and retail investors from participating in the Open Market Operation (OMO) market resulted in a sharp decline in Financial Instrument (FI) yields firmly into single-digit territory, which presented a positive case for equities as market selloffs in recent years have provided an opportunity for dividend yield investment strategy.
Capital market analysts expected the year 2020 to be a favourable year for equities against the backdrop of low interest rate environment. According to analysts, this is because companies would be able to access funds at cheaper cost, thus reducing their interest expense and positively impacting their bottom lines.
“Also, investors are expected to make a switch from fixed income securities yielding negative real returns to equities presenting positive real returns both in terms of dividend yields as well as possible capital appreciation especially in the first quarter of 2020.”
Speaking on the market performance for January, the managing director, Cowry Asset Management Limited, Mr Johnson Chukwu stated that the interest rates on Treasury Bill (T-bill) crashed to a very low rate in January. We show a 90-day T-Bill drop to two per cent and 364-day bills T-Bill dropping to less than five per cent. According to Chukwu, that alone attracted investors into the equities market. Again expectation of results to be declared on the NSE also attracted local and foreign investors’ participation in companies that always declare dividend. “Mind you, the restriction in Open Market Operation (OMO) by Central Bank of Nigeria (CBN) drives investment from fixed income securities to equities market, Chukwu said.
“Liquidity that should go to OMO instrument was invested in equities which were a plus for retail investors. Also, the Banks crashed their deposit rate on fixed deposit. So investors were looking for instrument they felt had prospect for good income.”
Research analyst at Investment One Financial Services Limited, Mr Abayomi Ajayi also said that the major contributor to increase to equities market in January will be the CBN’s crashed in T-bill rates to a single digit due to OMO restriction.