Investors continued to flock into the stock market to take up equity positions, a sign of improved confidence in the Nigerian economy after the recent policy move.
The stock market index budged to a five-day high, closing at 34,583.29 points at the close of business on Wednesday, against 34,115 points, an increase of about 1.37%; the market capitalisation rose by about N16billion to N11.42 trillion from N11.26 trillion the preceding trading day.
A total of 33 stocks gained on the bourse yesterday, while 18 stocks declined, leaving 67 stocks unchanged.
The CBN hiked private sector CRR from 15 percent to 20 percent, amid concerns that excess liquidity in the banking sector was being used to fuel speculative activities in the currency market. This decision, analysts said, translated to about N400billion that will be sterilised with the CBN considering the broad money in supply.
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Despite the positive outcome at the bourse yesterday, most stock market analysts are pessimistic in their post-MPC market outlook, saying that the hike in CRR will help bourgeon the supply-side at the stock market ,particularly as banks mobilise funds to meet up CRR hike.
“The stock market has not fared well since the beginning of the year. The increase in the MPR to 13% and the upward movement of the private sector deposits CRR to 20% will have negative impact on the stock market.
“We are of the opinion that the outlook for the stock market will remain bearish, as flight to fixed income instruments may continue and the market may experience net outflow of FDI” said market analysts at Capital Bancorp plc.
On the bond market, they noted that, “Because of the increase in interest rate, the prices of bonds are expected to come down and yields will go up, serving as an incentive to investors.
“There may be some activities in the market as new bond issues would have to be issued at market rates, in line with the current interest rate regime. We see more flight from the stock market to the bond market as investors seek less risky instruments.”
Market analysts at BGL said, “The outcomes of the meeting as highlighted above, portend downward pressure on equities and fixed income assets immediately as banks mobilise funds to comply with the CRR decision, since the decision takes immediate effect.
“Without prejudice to the expectation that most FPIs have left the market prior to this pronouncements, the reprising of risks by most institutional investors in the equities space could push the market lower.”
In a related outlook, market analysts at Associated Discount House Limited said, “ We look forward to further price weakness in the equity market: Given our conservative earnings outlook on banks and non-financial companies over the near term, we look forward to further sell-off in the equity market.
“ Whilst the 17.5% year-to-date (YTD) loss suggests a technical correction is underway, the fundamentals of the companies on the Bourse and the broad economy defy such recovery.”
According to the analysts, “We expect both local and foreign investors to be increasingly bearish on the market over the near term, especially as uncertainty over further naira devaluation/depreciation as well as political risk will dominate investor sentiment, going forward.
“More so, local investors will seek flight to safety in higher yield on fixed income instruments; an asset allocation strategy which reinforces our bearishness on Nigerian equities at this time. Interestingly, the development in the economy and monetary policy reaction leaves no “defensive”, in the stock market. “Whilst noting relatively less impact on some companies, which have headroom to absorb the shock, we are broadly conservative on equities, as the rising yield environment present compelling risk-adjusted return upside over the near term.”
Yields on government bonds fell across all maturities, with yields on 10-year bond dropping by 0.31 percent at the close of trading Wednesday. FGN bond yields fell for the second straight day by 2.3 percent, to close at a 3-day high of N113.45, rising by 1.34 percent from 111.95 the previous day. T-bill yields also fell.
“Investors are becoming a bit more confident now that the uncertainty is gone”, says Bunmi Asaolu, Chief Equity Research Analyst at FBN Capital. “Bonds also are looking more attractive than they were before now”. The banks are however, still facing regulatory head-winds”, said Asaolu.
Iheanyi Nwachukwu & EDOZIE IFEBI
