Stock market down by 1.27% as investors seek better yields after MPC rate hike

The Nigerian Exchange Limited (NGX) Premium-Board listed stocks started experiencing major sell-offs on Wednesday, a sign that investors have started pricing in Tuesday’s MPC outcome.

At the close of trading, stock market was down by 1.27 percent, while the NGX All Share Index (ASI) stood at a new low of 99,302.56 point from preceding day’s high of 100,582.89 points. Also, the value of listed stocks dropped to N54.317trillion. The market’s year-to-date return decreased to 32.80 percent at the close of trading.

Premium stocks like MTNN, Dangote Cement, Access Corporation, UBA, Seplat and FBNH were majorly up for sale on Wednesday morning thereby affecting their prices on the Nigerian Bourse.

In 10,549 deals, investors exchanged 396,228,353 shares worth N5.826billion. Transcorp, Access Corporation, UBA, Zenith Bank and Universal Insurance were actively traded stocks.

Nigeria’s equities market started taking a breather in early trading on Wednesday as portfolio managers realign asset allocation strategies towards higher yield fixed income instruments, at the expense of equities.
Lafarge Africa dropped the most, from N35.50 to N31.95, losing N3.55 or 10 percent, while Nigerian Breweries followed after dropping from N34 to N30.60, down by N3.40 or 10 percent.

The market furthered its downward movement as higher interest rate stokes bearish sentiment in the market.

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

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.

“With the 400 basis points (bps) hike in MPR to 22.75 percent in the just concluded MPC meeting, we expect to see market react negatively, as yields in the fixed income space remain attractive,” said Vetiva Research analysts.

In their post-MPC commentary, CardinalStone Research analysts said” Since the start of the year, bearish sentiments have continued to rattle the fixed-income market as unprecedented issuances at NTB and Bond auctions fuel higher yields”.

In their view, the strong hawkish actions of the CBN are likely to fuel higher yields in the fixed-income market in the near term.

“For the equities market, the higher interest rate is less compelling for valuation and
could further stoke bearish sentiment in the market.

“Nevertheless, sell-offs may
present decent entry opportunities in fundamentally sound stocks, such as those with positive interest sensitivities to their margins, robust cash and low leverage”.

The analysts believe that savvy investors may also look for tactical opportunities to earn dividend income as full-year numbers begin to trickle in March/April and onwards.

“The recent moves are also positive for the FX market, with associated inflows likely to support CBN’s recommencement of dollar sales to the BDCs. We, therefore, see latitude for improvement in FX liquidity and potential naira gains in the near to medium term,” CardinalStone Research analysts noted further.

“Bank stocks will likely take the most hit, especially as dividend payments may not likely reflect 2023FY profitability given the rational need to maintain a higher retention ratio to shore up capital positions ahead of CBN announcement of new capital requirements and the immediate capital need to absorb higher risk weighted assets arising from impact of Naira depreciation on dollar-denominated assets,” Abiola Rasaq, former economist and head investor relations for United Bank for Africa Plc said on Tuesday.