Stock Market Battles Policy Reversal In Treasury Bills

The price correction that resulted from profit taking activities as well as the reversal in Treasury Bills (TBs) yields last week may not necessarily impede the recovery prospect in the stock market, equity dealers have said.

They insisted that hopes for approvals and distribution of Coronavirus vaccines coupled with the low yield environment in fixed income securities would continue to propel the market in the positive direction.

The market had succumbed to profit taking and negative reaction to the uptick in short-term end of the Nigeria Treasury Bill (NTB) primary auction, resulting in decline in all the five trading days of the week.

Average yield across all instruments in the fixed income market had expanded by 28 basis points (bps) to 0.4 percent. At the Open Market Operation (OMO) and NTB segments, average yield expanded by 24 bps and 32 bps to 0.4 percent and 0.5 percent respectively following the anticipation of issuance of the Special Bill by the Central Bank of Nigeria (CBN).

The CBN on Thursday issued 81-day Special Bills worth N4 trillion at 0.5 percent discount rate to hasten economic recovery and deepen the financial market.

The action, consequently, led to a dip in the benchmark index – All Share Index (ASI) – by 2.5 percent to 34,250.74 points after sell-off in blue chip stocks including Dangote Cement (-8.0%), Lafarge Africa (-10.7%), Zenith Bank (-5.2%) and MTN Communication Nigeria Plc (-0.8%).

Also investors lost N463 billion as the market capitalisation dropped by 2.5 percent to N17.902 trillion from N18.365 trillion.

The performances across sectors were negative, with the industrial goods sector leading with five percent decline, followed by the banking sector, which fell by 2.9 percent. The insurance, consumer goods, and oil and gas also depreciated by 1.8 percent, 1.6 percent and 0.3 percent respectively. However., investment analysts at Cordros Capital stated that “the profit-taking and negative reaction to the unanticipated front-end supply from the CBN will be short-lived,” adding that yields in the fixed income market remain relatively unattractive, and is expected to remain positive for stocks.

“The CBN’s special interest-free 90-day Bill introduced last week to boost market liquidity by as much as N4.1 trillion will eventually also trickle down to the equity market,” said Ambrose Omorodion, dealer at Investdata Consulting.

“With many nations trying to fast-track the approval and distribution of COVID-19 vaccines, the positive sentiments and impact on economic recovery are likely to trigger buy interests,” he added.