Nigeria’s equities market closed in the red zone on Tuesday (-18 percent or N104billion), negatively reacting to another rate hike by the Monetary Policy Committee (MPC).
Rising from its two-day meeting, the MPC raised the Monetary Policy Rate (MPR) to 24.75 percent, representing 200 basis points increase.
As a result of Tuesday’s rate hike by the monetary policy committee, market watchers see investors will go in search of higher yields in the fixed income market, potentially constraining liquidity in the local bourse space.
The monetary policy committee changed the asymmetric corridor from +100/-700 to+100/-300 around the MPR; retained the CRR of commercial banks at 45percent, adjusted the CRR of merchant banks from 10percent to 14percent and held the liquidity ratio constant at 30percent.
At the close of trading on Tuesday, the Nigerian Exchange Limited (NGX) All-Share Index (ASI) and equities market capitalisation decreased further from preceding day’s highs of 104,136.35 points and N58.879trillion respectively to 103,952.47 points and N58.775trillion.
As expected, the week had started off slow amid profit taking in the banks. Ahead of MPC decision, United Capital research analysts said they expect activities in the fixed income market to continue to stand as key demotivator for equities investments.
They noted that the hawkish stance by the CBN in line with its inflation targeting framework will continue to also cast a bearish spell across risk asset classes.
“However, given the level of activity by the bulls in the market, pending the release of the financial statements of some corporates (particularly the top tier banks), the dividend season and strong corporate resilience, we expect further bargain hunting for the rest of the week.
“Given the recent bearish run, a lot of stocks drove further close to the oversold region, reflecting potential upsides. Ultimately, we expect strong corporate actions and dividend announcements to stand as a primary motivator toward the equities market, through to the first two weeks of April,” the analysts said in their March 25 note.
The share price of United Capital decreased most, from N24 to N21.90, losing N2.10 or 8.75percent. It was followed by UPDC which decreased from N1.52 to N1.37, losing 15kobo or 9.87percent, FTN Cocoa which dropped from N1.75 to N1.61, losing 14kobo or 8percent; and Livestock Feeds which dipped from N1.79 to N1.65, shedding 14kobo or 7.82percent.
GTCO, UBA, Zenith Bank, Access Holdings and Fidelity Bank shares were most traded as stock investors in 8,689 deals exchanged 374,410,701 shares worth N11.291billion.
Also, the stock market’s year-to-date (YtD) return lowered further to +39.02 percent.
During the Monetary Policy Committee (MPC) meeting, the Committee deliberated on the following macroeconomic concerns: the persistent inflationary pressures within the Nigerian economy; escalating inflationary pressures across the global economy; volatility in foreign exchange rates; confidence levels of foreign investors in the Nigerian economy; inflows of foreign capital into the economy; and high levels of money supply circulating within the economy.
“We expect a slight uptick in stop rates across the offered instruments,” said Meristem Wealth managers who also believe that rate hike at this March MPC meeting will likely to prompt investors to seek higher rates at the auction.
“The monetary authority’s commitment to make fixed income rates better reflect policy direction further reinforces our expectations and makes a case for an uptick in rates at the auction,” Meristem said.
The Central Bank of Nigeria (CBN) will this Wednesday March 27 hold a Treasury Bills (T-Bills) Primary Market Auction (PMA). At the PMA, existing T-Bills totalling N161.33billion (N17.61billion, N1.56billion and N142.16billion across the 91-day, 182-day, and 364-day instruments, respectively) will mature and be rolled over.
“Our sense is that pension funds’ enthusiasm for equities is cooling off. And why wouldn’t it? Market interest rates are rising and it is possible that their portfolios of Nigerian Treasury Bills (T-bills) will yield more than double what they yielded last year.
“While fixed-income yields fall well short of the rate of inflation, it is possible that pension fund managers today are content with what T-bills and FGN bonds have to offer,” said Coronation research analysts in a recent note titled “More equities for pension funds”.
