• Tuesday, May 21, 2024
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BusinessDay

Mixed sentiment trails markets post MPC

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In the wake of the continued ‘hawkish stance by the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN), market analysts appear to differ in their expectation from both the equities and bond markets.

Though, most analysts say they expect to see more flight from the equities market to the bond market as investors continue to seek less risky instruments, other schools of thought within the market believe that the market will maintain the positive mood as the outcomes of MPC meeting signals maintenance of stability along all monetary policy variables.

Recall that the MPC held its meeting on September 18 and 19, 2014, expressing concern over rising trend of consumer prices, modest volatility in exchange rate (especially widening gap of currency prices across market segments; official, interbank and parallel), upcoming redemption of N866 billion AMCON bond, which will heighten the “excess liquidity risk” in the banking system, declining crude oil price and attendant weakness in fiscal revenue, as well as probable rise in money supply on the run-up to 2015 elections.

On the bond market, analysts say they do not expect a significant change in the yields of existing bonds as the effect of the policy has already been factored into the prices of the instrument.

For equities, while many analysts say the positive sentiment witnessed last week will continue this week on growing investor confidence, others say they expect a mixed performance in the absence of quarterly earnings releases.

“The stock market has not fared well since the beginning of the year. The retention of the MPR at 12 percent and the retention of CRR private sector deposits at 15 percent would not change the status quo for the stock market,” market analysts at Capital Bancorp plc said.

According to them, “the outlook for the stock market remains bearish, as flight to fixed income instruments may continue and the market may experience net outflow of FDI.”

“We expect the market to maintain the positive mood as the outcomes of the MPC and FOMC meeting have maintained stability along all monetary policy variables. We expect positive trading this week, owing to the pronouncement in the just concluded MPC meeting,” market analysts at Meristem Securities said.

“We expect the cautious trading by investors to be sustained this week, while we see some level of speculation in the market. We also believe the price appreciation in the Industrial goods names will be short-lived. This guides our expectation of a relatively calm market, with a marginal gain for the week,” said UBA Capital analysts.

On the bond market, analysts at Associated Discount House Limited said: “Even as foreign investors remain on the sell-side of the market, local investors are betting on lower yield environment post-election.”

According to them, “bargain hunters are seeking investable assets, ahead of AMCON bond redemption, which will further deepen market liquidity (even so probable treasury bill swap will moderate the liquidity impact of the redemption).”

The analysts however doubted the sustenance of modest price gain recorded early this in the bond market “given the mixed sentiment on selective maturities and anchoring effect of the ‘hawkish’ stance of the MPC, which suggests tighter monetary policy ahead,” saying that overall, they look forward to a relatively flat market in the session ahead.

Iheanyi Nwachukwu