Thursday, February 12, 2009

Bonds as alternative investment window

Variety they is the spice of life and this is true at all time and in every area of human life. Beyond human life, the financial industry is usually see as a veritable source of keeping businesses and institutions in existence.  However, analysts have continued to decry the shortage of variant securities instruments in the capital market, leaving the equities market more as a monopoly. Available data confirms that equities alone constitute about 90 percent of the total market capitalization of the NSE. The implication of this is that the Nigeria’s financial market leaves investors with limited or no alternative investment instruments unlike their counterparts in other markets of the world. 
The director general, Securities and Exchange Commission (SEC) Musa Al Faki in a recent training workshop for capital market operators pointed out that at this time in the life of our capital market the bonds market deserves all the possible attention and growth, at least for the purpose of portfolio diversification. 
Analysts believe that the over dependence in equities market has caused investors much loses in the meltdown. They also call for more information and enlightenment on the advantages of bonds to encourage the investing public to patronize the bonds market. The need for education about the bonds market is not limited to the investors but also to the operators who would manage the investments as well as offer advice as professionals to the investors. 
According to Al Faki, providing necessary education for the stockbrokers on bonds would encourage the introduction of such financial instruments into the market to complement equities and consequently result in deepening our market. 
It would be recalled that last year a number of companies were cleared to come to the market to raise money in the equities market but could not muster the courage to come out with public offers due to the bearish market condition. 
However, Crusader Nigeria plc came with an innovative product known a debenture stocks with 13 per cent coupon rate for five years and the option to convert to equity at maturity at the current price of crusader stocks. This product was lauded by stakeholders as a branching off from the status quo, being equities. Investors in this product are not affected with the melting down that has persisted. 
Every year, 13 percent interest is paid while the principal sum invested is in tact to be fully paid at the end of the five years. This is perhaps the strong point about bonds against shares. Nigerians are however not embracing the bonds largely due to lack of information and the craze for quick gains through share appreciation that characterize the bullish market. But it must be pointed out that market is unpredictable but driven by market forces of demand and supply. Therefore, no one can guarantee the sustenance of bullish trend and for how long.


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