By Nkiruka Nnorom
Activities in the fixed in come, FI, market fell by 30.8 percent, month-on-month, MoM, in April following low system liquidity (idle cash) caused by reallocation of assets by investors from fixed income to equities in a bid to take advantage of higher returns in the stock market.
According to capital market operators, investors who were hunting for bargain moved their assets to the stock market during the period to reap from the impressive 2020 full year financial results and the dividend declared by some quoted companies.
Analysis of the latest report on Fixed Income and Currency (FIC) market for April 2021 released by the FMDQ Securities Exchange (FMDQ) showed that activities in the fixed income space fell to N7.32 trillion from N10.58 trillion in March, representing a 30.8 percent, MoM, decline.
This decline contradicts the steady increase recorded in the first three months of the year. Analysis showed that fixed income transactions rose by 43.8 per cent, MoM in February and also by 6.44 per cent, MoM in March.
Furthermore, the FMDQ report showed that total transactions in the FIC market fell by 17.24 per cent, MoM, to N16.18 trillion in April from N19.55 trillion posted in March, 2021.
Commenting on these developments, David Adonri, Managing Director/CEO, Highcap Securities, explained that activities shifted from the bonds’ secondary market to the primary market where several FGN bonds were rolled out in April and possibly May.
“As a result, there was migration of financial assets from the secondary market to the primary market,” he said.
Continuing, he said: “Due to the impressive 2020 full year results of listed companies, more financial assets also exited fixed income and flooded equities.
“During the period, funds also migrated from cash to securities to take advantage of the higher returns there.”
Ayodeji Ebo, Head, Retail Investment, Chapel Hill Denham, said: “The decline in FI activities MoM and YoY can be attributed to lower system liquidity in April 2021 relative to March 2021 and April 2020.
“We have also observed more participation in the primary market auctions due to higher chance of better rates.”
On the outlook, he said: “We expect rates to stay around current levels or slightly moderate in the coming months if we don’t see any adjustment in secondary market treasury bills (Open Market Operations, OMO) rates.
“On forex, the supply of foreign exchange (FX) has reduced on a YoY and MoM basis. The CBN is currently the main supplier of dollars at the I&E FX market. “We expect the spot FX rates to gravitate towards the FX futures quotes while we anticipate appreciation at the parallel market.”
Breakdown of transactions in the FIC market for the period, showed that Foreign Exchange (FX) and money market transactions were the highest contributors to the FIC market, jointly accounting for 54.57 percent of the total FIC market turnover.