Stock market rout continues Thursday on MPC decisions

The negative trend seen at the Nigerian equities market persisted in early trading on Thursday as investors continued to price in outcome of last Tuesday’s bimonthly meeting of the Central Bank of Nigeria (CBN) Monetary Policy Committee (MPC).

The NGX All-Share Index (ASI) which slipped below the 100,000 mark on Wednesday continued on the negative side Thursday morning by 0.33 percent (as at 11a.m) as investors seek better yields after MPC rate hike.

The Monetary Policy Committee (MPC) on Tuesday at the end of its two-day bimonthly meeting raised the Monetary Policy Rate (MPR) by 400 basis points (bps) to 22.75percent.

The MPC also changed the asymmetric corridor from +100/-300 to +100/-700 around the MPR, raised the Cash Reserve Requirement (CRR) from 32.50percent to 45percent while the liquidity ratio was held constant at 30percent.

“We expect yields in the fixed-income market to trend higher given the CBN’s disposition to deploy orthodox monetary policy tools
(example OMO auction) to mop-up excess liquidity.

“For the equities market, we expect the bearish sentiments we have observed in
recent weeks to persist. This is hinged on the resultant effects of the increase in interest rate on fixed income yields,” United Capital research analysts said in their post-MPC note.

The NGX All Share Index (ASI) who stood at 99,302.56 point on Wednesday has dropped to 98,956.62 points as at 11am on Thursday. Listed stocks value also decreased to
N54.147 trillion.

Also, Meristem research analysts in their post-MPC note said the MPC’s hawkish stance underscores its continued dedication to tackling inflationary pressures.

“We anticipate a negative effect on the equity market, with potential selloffs, as investors reallocate funds to the fixed-income market to take advantage of the elevated yields. On the other hand, we expect the higher yields to further spur foreign investors interest in the domestic fixed income market,” Meristem research analysts added.

In 2,240 deals during early trading on Thursday, investors exchanged 70,807,064 shares worth N637.869million.

“As expected, the market reacted negatively to the rate hike in MPR and we are likely to see similar bearish sentiment filter into tomorrow’s (that is Thursday) trading session,” Lagos-based Vetiva Research said on Wednesday.