Bond market thrives over equities

Investors' confidence in the Federal Government of Nigeria's (FGN) bonds has been growing in the last 10 months.

Between January and October, total transactions on FGN Bonds through the Over-The-Counter (OTC) market were 15 billion units valued at N15.95 trillion in 109,588 deals. This represents about 83 per cent increase in volume against the comparable period of 2008 when transactions on the OTC market for the FGN Bonds were 8.21 billion units worth N8.22 trillion in 66,650 deals.

On the other hand, activities at the equity market dipped by 51 per cent in the last 10 months comparable same period in 2008. Total turnover of 85.94 billion shares worth N582 billion was recorded, against the 175.5 billion units valued at N2.3 trillion in the comparable period during 2008.

Experts views

Analysts say the bond market enjoyed better patronage from investors because bonds are secured products of the Exchange, with guaranteed income and capital reimbursement, while equities are not and are more volatile in nature.

Also, the FGN bond witnessed more patronage because there were no transactions in the Federal Government Development Stocks, State Government Bonds and Industrial Loans/Preference Stocks sectors for about six months. The values of the Federal Government Development Stocks, State Government Bonds, and Preference Shares remained at N2.5 trillion, N97.6 billion, and N76.2 billion, respectively.

However, Opeyemi Agbaje, Financial Advisory at Resource and Trust Company Limited, is optimistic that corporate bonds being brought into the market especially those from the banks, will soon enjoy a good rally as much as the Federal Government bonds.

"Banks are coming to raise money from the bond market because they definitely cannot go to the equity market. Equity investors got their fingers burnt. But I believe people won't mind investing in bonds even at low interest rate -say 12 to 15 per cent, because it is safer than equities that promise 100 per cent return. Better banks will succeed in the bond market," he said.

October activities

In October, the bond market recorded a turnover of 1.65 billion units worth N1.93 trillion, in contrast to the 1.71 billion shares valued at N1.9 trillion exchanged in the preceding month. The most active bond, measuring by volume, was the 6th FGN Bond 2029 Series 3, with traded volume 284.22 million units valued at N363.5 billion, followed by the 5th FGN Bond 2018 Series 2, with a traded volume of 159.43 million units valued at N188.42 billion.

The stock market, in October, recorded a turnover of 10.7 billion shares, worth N73.31 billion against a total of 9.05 billion shares valued at N66.01 billion exchanged in September. Hence, volume and value rose by 17.9 per cent and 11.1 per cent, respectively. These had dropped by 8.7 per cent and 4.0 per cent, respectively in September.

Market Capitalisation

The market value of the 297 listed securities, in October, closed at N7.82 trillion, up by 0.16 per cent from the N7.81 trillion recorded in September; the 213 listed equities accounted for N5.15 trillion or 65.9 per cent of total market capitalisation. The year-to-date of the Nigerian Stock Exchange All-Share Index declined by 30.7 per cent; from 31,450.78 basis points to 21,804.69.

The top five equities with market capitalisation of N1.75 trillion or 22.3 per cent were dominated by the banks with four representatives, while the breweries sub sector had one representative in the Top 5.

First Bank of Nigeria Plc with market capitalisation of N430.45 billion was the most capitalised listed equity. Nigerian Breweries Plc was second with N412.2 billion; Zenith Bank Plc with N361.7 billion; Guaranty Trust Bank Plc and United Bank for Africa Plc were fourth and fifth, respectively.

Market Return

The Stock Exchange in its October report, noted that the stock market recorded a monthly positive return of +0.35 per cent on a dividend-adjusted basis, an improvement over the negative return of 8.6 per cent recorded in September. However, it stated that the 10-month average return remained negative at -34.95 per cent.