Many local and foreign institutional investors have noted that the Nigerian stock market has remained shallow, which according to analysts, makes the market face poor liquidity with average free float still hovering below 30 percent coupled with lack of market makers.
According to Bismarck Rewane, CEO, Financial Derivatives Company, there is also lack of tradable financial instruments, as “the lack of tradable asset classes and financial instruments contribute to an inefficient market with low price discoverability. If you build it, they will come.”
Ibinabo Princewill, head of research and investment, APT Securities and Funds Limited, noted that with the index at its 3-month low, “the market needs some positive news to drive investors’ attention in that direction as more is being done at the moment to create liquidity in the fixed income market, thereby driving investors away from the capital market.”
She said: “The successful recapitalisation of the rescued banks and half year results by companies will definitely boost investor confidence in the market, especially as we expect economic activities to pick up in the third quarter.
“We would also bear in mind that if inflationary pressures do not subside, the Monetary Policy Rate (MPR) is likely to be increased which could lead to a further tightening of liquidity to the detriment of the market.”
In the just concluded month, the NSE ASI continued its downward spiral declining by 3.43 percent. This brings year-to-date (YTD) return to 0.85 percent, while YTD same period 2010 was 21.88 percent. Average daily volume traded increased by 4.72 percent to 357.6 million, but average value traded declined by 4.52 percent to N2.34 billion in June.
The banking sector lost the most market share in June. Uncertainty surrounding the rescued bank issue is weighing down investor sentiment.
Banking remains the dominant value and volume traded sector with 51 percent and 48 percent, respectively.
“Increase in interest rate and Cash Reserve Ratio (CRR) tightens liquidity in market. Negative impact on stock market is bringing liquidity challenges, as higher rates and yields in fixed income market become more attractive to institutional investors,” Rewane told an audience recently at the Lagos Business School monthly economic news and views, titled “Post-Election Nigeria: Hope, Worry or Fear.”
“Institutional investors remain cautious as they await signals that the market has completely bottomed out. FGN bonds by foreign investors are expected to increase inflow of foreign investment. Appointment of Ngozi Okonjo-Iweala suggests reform agenda will continue. This will reduce uncertainty discount in the market,” he added, saying that “further monetary tightening is not unlikely this quarter.”
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