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Nigeria’s hawkish policy decision takes further toll on equities

Nigeria’s equities market dropped further by 0.02percent on Wednesday, the second time this week, as the nation’s hawkish policy decision continues to make stocks buying unattractive.
The Nigerian Exchange Limited (NGX) All-Share Index (ASI) and its equities market capitalisation depreciated further from preceding day’s 52,612.55 points and N28.656trillion respectively to 52,599.65 points and N28.649trillion.

The 289th meeting of the Monetary Policy Committee (MPC) which started on Monday ended on Tuesday, January 24. The MPC raised the Monetary Policy Rate (MPR) by 100 basis points (bps) to 17.5percent; retained the asymmetric corridor of the MPR at +100 / -700 basis points; retained the Cash Reserve Ratio (CRR) at 32.5percent; and retained liquidity ratio at 30percent.

Investors lost about N7billion at the close of Wednesday’s trading session on the NGX. This was driven by major laggards like Geregu Power which dipped most on the Bourse, from day-open high of N142.40 to N134, losing N8.40 or 5.90percent; Honeywell Flourmills which also dropped from N2.33 to N2.21, losing 12kobo or 5.15percent; and Thomas Wyatt which decreased from N1.45 to N1.31, after shedding 14kobo or 9.66percent of its day-open value.

Year-to-Date (YtD), the market has risen by 2.63percent. In 3,493 deals, investors exchanged 116,445,174 shares valued at N2.671billion. Mutual Benefit, Transcorp, Geregu Power, FBN Holdings and GTCO were top-5 traded stocks on the NGX.

Read also: NGX eyes more listings to meet 2023 strategic goals

“Going forward, we expect the hawkish policy decision to contribute to a slowdown in equities in the short run. Also, we expect the decision to muddy the outlook for the fixed income market. On one hand, robust system liquidity and healthy maturity inflows will raise demand for fixed income instruments.

On the other hand, investors will likely begin to price in the rate hike at subsequent primary auctions. Overall, we reckon the unexpected aggressiveness of the MPC will create a volatile fixed income market for the rest of the quarter, with the yield curve likely to record a bear flattening (short term interest rates rising faster than long term rates),” said United Capital research analysts.

 

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