- OMO policy, BUA listing spur activities
rading activities on the floor of the Nigerian Stock Exchange (NSE) ended the month of January 2020 on the positive trajectory with a record of N1.899 trillion gain to close at N14.857 trillion in market capitalisation.
The growth in market capitalisation during the month was due to positive sentiment by investors following the recent Central Bank of Nigeria (CBN) restrictions on Open Market Operations (OMO) and the listing of BUA Cement Plc.
Available statistics to New Telegraph showed that activities on The Exchange, which opened the trading month at N12.958 trillion in market capitalisation and
26,842.07 in index at the beginning of trading on January 2, 2020, closed the month at N14.857 trillion and 28,843.53 index points, hence has earned a gain of about N1.899 trillion or +7.46 per cent.
The CBN had issued a directive barring individuals and local corporates from investing in OMO auctions. This was contained in a circular that was released towards the end of October.
The exclusion implies that only Deposit Money Banks (DMBs) and Foreign Portfolio Investors (FPIs) can participate in OMOs, while everyone else, including non-bank financial institutions, will have to shift focus to T-bills and other investment options.
Indeed, the policy is largely in line with CBN’s drive to divert liquidity away from risk-free instruments to the real sector. The apex bank had earlier instructed banks to prevent customers with outstanding loans and recipients of intervention funds from investing in T-Bills or OMOs.
With the restriction, retail and institutional actors will have to seek alternative destinations for their funds, creating extra liquidity in other assets. The restriction of key corporates, such as Pension Funds Administrators (PFAs) and insurance companies from participating in OMO is expected to free up excess investable cash for allocation to assets beyond fixed income alternatives.
The experts believed that this has ultimately increased investors’ appetite for stocks, especially the fundamentally-strong equities and restore confidence in the market.
Also, the NSE during the month listed 33.864 billion ordinary shares of 50 kobo each of BUA Cement Plc. at N35 per share on the main board of the Exchange.
The listing of the company’s shares has added N1.18 trillion to the market capitalisation of the Exchange to become the third largest company listed on the NSE by market capitalisation and to further deepen the Nigerian capital market.
Speaking on the listing, the Chief Executive Officer of NSE, Mr. Oscar Onyema, said it is exciting for the exchange to record such a major listing at the beginning of the year, noting that it is another opportunity for investors to have access to a company with good track record.
Already, the Association of Securities Dealing Houses of Nigeria (ASHON) has urged the Federal Government to sustain the current policy on OMO for enhanced attractive investment in the capital market.
The new policy, which crashed interest rate on Treasury Bill and trimmed yields on bond, has prompted investors and fund managers to shift focus from the money market, staged a comeback to the capital market with massive demand for shares.
ASHON Chairman, Chief Oyinyechukwu Ezeagu, commenting on the development, explained that the new policy on OMO had been very beneficial to the stock market. He noted that the fall in interest rate created opportunities for higher Return On Equity (ROE) and the investors are taking advantage of the inverse relationship between the money market and capital market.
Ezeagu, however, expressed concerns on sustainability of OMO policy going by uncertainties that usually characterize government policies in Nigeria.
He argued that the government might decide to reverse OMO policy if banks mount pressure that it is hurting their profit margin or the CBN perceives a need to top up the nation’s external reserve.
“Our concern is always policy uncertainty and consistency in Nigeria. This has been a major drag to the growth and development of the economy and by implication, the capital market.
“The new policy on OMO is making investment in the market more attractive, but the question is sustainability. We operate in an unpredictable environment where there can be policy somersault at the least expected time,” Ezeagu said.