Tuesday, May 17, 2011

Enhanced Money market Profit dampens stock market

The increasing yield in money market fixed income instruments is hampering the amount of funds that should enter the capital market as investors continue to seek higher returns on their investment.
The performance indices at the Nigerian Stock market rose to its highest level in two months on Friday to close 25,813.71 points, on the back of gains in banking, cement and some consumer goods stocks. This growth is however dampened by improvement in the money market returns. The year-to-date return of the Nigerian Stock Exchange All share index (NSE ASI) stood at 4.21 percent. This return is being hampered by factors outside the stock market. According to analysts at FSDH Securities Limited, an investment advisory firm, impressive first quarter report and prospect of good second quarter result is good for the stock market. "However, the risk of currency depreciation and the high yields on fixed income securities will continue to reduce the fund that should enter the (stock) market and limit the growth in the equities market," the firm stated in its weekly report. Money market instruments are safer, unlike the stock market which is volatile. The firm also expects the Central Bank of Nigeria (CBN) to halt the drop in the value of the currency and so ensure safety of investment. "We expect the CBN to come up with measures to prevent the gradual depreciation in the value of the Naira in line with its promise to limit it within 3 percent in the year 2011."

Inter-twined market
Managing director of PAC Securities Limited, a stockbroking firm said recently that the financial market regulators need to harmonise policies that would enhance investor safety since both markets are interwoven. "There is need for the Securities and Exchange Commission, the CBN, and the Nigerian Stock Exchange to sit down and harmonise policies, knowing very well that what affects the money market equally affects the capital market, either directly or indirectly." He said as interest rates and foreign exchange rates move, they also affect investors decision and how they play in both markets. "When you are raising interest rate, you must consider other markets that would experience either positive or negative shock. It is up to CBN to balance these positions," he said.
Naira Goes Up
Meanwhile, the naira firmed up yesterday at the official window as the CBN, for the first time since November met all the dollar demand at the bi-weekly Wholesale Dutch Auction System (WDAS). The Central Bank sold the $499.89 million demanded at 153.05 per dollar compared to $300 million sold at 153.39 to the dollar at previous auction on Wednesday. At the interbank market, the naira also appreciated to 155.60 to the dollar from 155.85 on Friday. CBN governor, Lamido Sanusi said that he was ready to put the country's foreign reserves at the disposal of stabilising the currency rather than build up the reserves at the risk of inflation.

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