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Equities retreat as MPC disappoints analysts

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Nigerian equities market Tuesday retreated from previous rally as the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) disappointed many analysts and left all rates unchanged without a call on the naira.

The Nigerian Stock Exchange (NSE) All Share Index (ASI) decreased by 0.55%, while the Year-to-Date (ytd) return stood at -16.79%.

The All Share Index closed at 23,832.03 points as against the preceding day close of 23,963.64 points while market capitalisation lost N46billion to close at N8.196 trillion as against preceding day close of N8.242 trillion.

The volume of stocks traded decreased by 33.6percent, from 215.18million to 142.85million, while the total value of stocks traded decreased by 21.8percent, from N2.1billion to N1.6billion in 3,298 deals.

Nigeria’s Monetary Policy Committee (MPC) met on January 25 and 26, 2016 to review domestic and international economic conditions in order to determine the policy direction for the next two months.

Consequently, the MPC decided to retain: the Monetary Policy Rate (MPR) at 11percent; liquidity ratio at 30percent; and Cash Reserve Ratio (CRR) at 20percent.

“Investors’ confidence remains fragile, as outcomes of the MPC meeting appears to have done little in calming investor nerves, in our view”, analysts at United Capital plc said. They expect to see choppy trades today, “with investors likely to trade cautiously with an eye on plausible policy surprises by the Apex bank especially around FX.”

On what shapes the trading session today, research analysts at Vetiva Capital Management Limited said they foresee continued loses as they observed renewed sell pressure on a number of large caps at the close of yesterday’s session.

Vetiva analysts also noted that the little guidance on currency management from the MPC at yesterday’s meeting could also exacerbate the sell pressure in the market.

Analysts at Lagos-based investment house, Afrinvest said: “Given that gains on the bourse have been majorly on bargain hunting, the loss recorded yesterday as well as the weak sentiments indicate profit-taking activities.

“The decision of the MPC to leave all rates unchanged and not make a call on the Naira could further dampen investors’ appetite in the equity market and spur selloffs in the trading session ahead. We advise short-term investors to thread with caution while longer term investors can look beyond the near-term risk to take advantage of the cheap market valuations”, the analysts added.

Research analysts at Dunn Loren Merrifield said the four-day rally, which started off last week Wednesday ended Tuesday, “apparently triggered by renewed selling in bellwether stocks and nervous expectations of FY’15 results.”

“In our view, the market has shown a mix of speculative activities and dividend yield play”, the analysts said in their Tuesday equity market brief.