‘US bond purchases cut will hurt Nigeria’s capital market’
The Nigerian Stock Exchange (NSE) has expressed concerns over the proposed monthly bond purchase cut by the United States Federal Reserve.
Chief Executive Officer of the NSE, Oscar Onyema who made this known during the review of market activities in 2013 and outlook for 2014 yesterday in Lagos said the decision by the US Federal Reserve to start cutting its monthly bond purchases, initially to $75 billion from $85 billion is expected to have a residual effect on the Nigerian equity, bond and currency markets later in 2014.
The NSE boss believed that the action will affect foreign portfolio investment and the strength of the naira against the dollar.
He further that the heighten appetite for sovereign debt is expected to resurface in 2014, as the federal government seeks to reduce its domestic debt, flattening the bond market for states.
He projected that as Nigerian government bonds have historically offered high yields, it will remain an attraction for investors seeking those high returns.
He anticipated that the corporate debt market would continue to struggle as the cost of issuing corporate debt (long term) remains higher than accessing short-term debt from the banks.
Speaking on the exchange will strengthen its trading activities, Onyema said the objectives and key initiatives of the exchange for 2014 are going to be in line with the federal government’s reforms.
According to him, “We anticipate achieving greater strides in our objective to support development of the real economic sector as a result of our new corporate strategic direction. Our five strategic objectives for 2014 - 2016, derived from the NSE’s new corporate strategic plan are increase the number of new listings across five asset classes; increase order flow in the five asset classes; operate a fair and orderly market based on just and equitable principles; champion the development of enabling laws and policies to drive capital market development; and diversify income streams.”
Onyema said the outlook for the Nigerian economy remains promising with the likelihood of higher growth, lower inflation and wealth accumulation.
“The projected expansion of Nigeria’s economy continues to be driven by the non-oil sector (agriculture in particular), and should increasingly be impacted by the newly reformed power sector. According to the Outlook on the Global Agenda 2014 by the World Economic Forum (WEF), poverty, unemployment and income inequality are the top three pressing challenges facing subSaharan Africa. In Nigeria, as income inequality widens the wealth gap, education, health and social mobility will continue to be at risk. This, coupled with rising unemployment, especially structural unemployment, poses challenges to the growth of the securities markets.”
Meanwhile, trading activities in the bond market, Over-The-Counter (OTC) has been regarded as stagnant in 2013 despite the huge gain recorded in equity market.
Speaking on the market performance in 2013, Onyema said the bond market was stagnant in terms of market capitalization at N5.85 trillion ($36.61 billion).
He said the bond witnessed four new state and municipal bond issues, one corporate bond issue, one supra-national bond issue and one government bond issue in 2013.
The NSE in its review said in the OTC market, the value of cash transactions for government bonds increased by 25.49 per cent (22.68 per cent in $-terms) from N7.10 trillion ($45.45 billion) to N8.91 trillion ($55.76 billion) as investors continued to satisfy their appetite for fixed-income securities, following the CBN pronouncement to sterilize 50 per cent of public sector funds.