Hedge funds, other monies drive stock market growth

Business Day learnt that foreign portfolio investors, who want to cut their losses as a result of this development are evading the local bourse. The global sovereign rating of the economy, it is believed, has instilled confidence in the international business environment in spite of the risk associated with an emerging market like Nigeria. The interest in the Nigerian capital market cut across the equities and debt market.

Victor Ogiemnwoyi, managing director, Partnership Investment Company Limited, says over 50 percent of Federal Government Bonds are taken up by foreign investors. The renewed offshore interest in the bond market, according to him, is informed by the attractive coupon rates of 9 percent to 12 percent, which are considered better than the rates in other emerging markets like Brazil.

Business Day has learnt that one of the biggest avenues of foreign capital inflow is the global depository receipts (GDR), which involves the flotation of foreign currency –denominated bond on foreign stock exchanges.

It is believed that the funds from banks’ offers, which have been lying with the Central Bank of Nigeria (CBN) for verification, are being released to financial institutions and a part of the money is being invested in the market either as direct investments or marginal funds extended to institutional investors to take positions. This has helped to stabilise the market and shield it from the traditional, end-of-year bearishness.

The increasing interest of Nigerians in the stock market, analysts say, has compelled informal sector operators to re-channel some of the large funds circulating in the sector into the market. This is demonstrated by the large number of traders, farmers and artisans who invest in the stock market.

Pension funds are also said to be driving liquidity in the market. At the inception of the pension scheme in 2005, the pent-up of the funds, part of which found their way into the market, caused leaps in share prices and led to impressive returns through capital appreciation. Three years on, the funds are coming in trickles while helping to put demand pressure on stocks.

Capital market operators are not agreed on the growing liquidity boosting the confidence of companies that are coming to raise money as the year runs out, even as the oversubscription of banks’ offers has lent credence to the excessive liquidity in the market.

Chinenye Anyanwu, managing director, Dependable Securities Limited, says in the new fiscal year as governments at all levels embark on capital expenditures and settle some local debts, the market would be awash with more money with prospects of capital appreciation.

Ike Chioke, deputy managing director, Afrinvest, says some of those interested in the market are speculators, who want quick money, a development that can hurt the market.

He expresses the fear that if the investment objectives of these calibres of investors are not realised, they could take a flight.