‘Fixed Income Securities a Compelling Asset Class’

Mr. Godwin Emefiele, Governor, Central Bank of Nigeria (CBN)

Nume Ekeghe

The WSTC Financial Services Limited (WSTC) has stated that the fixed income market would remain attractive post-2015 elections.

It stated this yesterday in a report titled: Postponement of reprieve for the markets, which highlights the election postponement and its implications on the market.

It stated: We reckon that the fixed income securities remain a compelling asset class, as we expect yields on fixed income market to remain attractive in 2015.

The projection was anchored on the aggressive government borrowing as a result of ebbing government income from oil revenue and the maintenance of a tight monetary policy stance by the Central Bank of Nigeria (CBN), particularly in order to preserve positive net capital flows in the face of rising country risk premium.

On the implications of shift of the dates for the elections, he said: We believe that the rescheduling of the general elections is tantamount to deferring both socio-political stability, and consequently, reprieve for the financial markets. We believe this does not in any way bode well for ailing investors confidence and already lean capital inflows.

It also predicted another devaluation of the naira in the near term, adding: We believe the demand pressure in the foreign exchange market, which has hitherto been sustained by concerns about weak international crude oil prices, low fiscal buffers and domestic uncertainties will be further heightened by market reaction to the postponement of the general elections.

In the light of these realities, and given the nations currently low stock of foreign reserves (with almost no hope of any accretion in the near term), we do not believe the CBN will be able to effectively hold unto its resolve to continue to defend the local currency. Thus we retain our expectation of a further devaluation of the Naira in the near term in order to check an avoidable depletion of the nations reserves.

Commenting on the activities of the stock market, it noted that although we expect market reaction to elevated political risks to create attractive entry points, we hold a cautious view on equities. Except for a significant reversal in the international prices of crude oil in the near term (which looks most unlikely), we expect the lull in the equities market to remain, at least, in the pre-election period, given a strong positive correlation between the performance of the Nigerian equities market and investors perception of domestic risks.

In addition, we reckon that expectations of depressed corporate earnings and low dividend pay-out (on account of regulatory headwinds in the banking sector) will further subdue prices in the equities market in the near term.