Expert recommends adjustment of Monetary policy as panacea for plunging equities

By Chioma Obinagwam

The continual decline of key metrics of the Nigerian equities market- the Nigerian Stock Exchange(NSE) All-Share Index and the Market Capitalisation has not gone unnoticed.

This is evident in the feeling of bewilderment and panic that has griped investors and stakeholders of the equities market.

Now, the ambience of panic and puzzle at the market is not unconnected to the persistent lull in the equities market where the NSE All-Share index and the market capitalisation shaved as much as 2.42 per cent each in a single.

Sadly, analysts largely attributed the lull to lack of liquidity by retail investors to participate in the market, the exit of foreign investors from the market owing to the current economic recession in addition to alternative channels of investments other than equities that has presented mouth-watering returns to its investors.

Chief Executive Officer(CEO), Cowry Asset Management Limited, Johnson Chukwu said:” The major reasons for the decline witnessed the capital market is that retail investors do not have liquidity to play in the market. The foreign investors are not ready to invest in the country because of the recession and the yields on fixed income instrument seem more attractive than equities; with treasury bills above 18 per cent.

More so, a recent Foreign and Domestic investment  report released by the NSE showed that foreign and domestic investments transactions dipped significantly by 41 per cent in nine months since January 2016.

Having established the causes of the downward trend, investors are still yearning for a rebound in the capital market.

It is however, instructive to note that a rebound is inadvertently tied to the recovery of the Nigerian economy, since the capital market is reflective of the economy.

Surprising though, the fixed income market, especially the treasury bills of the money market seem to be immuned to the trend and has witnessed a surge as investors look to it as a safer alternative owing to its impressive yields on investment.

This is so because investors in that segment get as much as 18 per cent or more on their investments.

Chukwu suggests that the government should look at adjusting its monetary policies, particularly, with regards to the interest rate on Treasury Bills in the southward direction to engender participation of investors, mostly Institutional in the equities market.

“Nothing is perpetual. The market will rebound but that will be tied to the economy. Nobody can say when the economy will come out of recession. The yields on fixed income instruments would have to drop and that will be based on the adjustment of CBN to its policies.”