NIGERIA’s stock market has been hit by the Central Bank of Nigeria’s (CBN) monetary policy tightening, as investors have lost over N3 trillion in just one month.
The CBN had increased the monetary policy rate (MPR), otherwise known as the benchmark interest rate, by 200 basis points (bps) to 24.75 per cent on March 26, at the end of its two-day monetary policy committee (MPC) meeting.
This came after it raised the benchmark interest rate by 400 basis points to 22.75 per cent earlier in February, resulting in a 600 basis point increase in MPR since the beginning of this year.
The rate hike was intended to rein in inflation stoking the country’s economy and businesses and worsening citizens’ hardships. However, inflation has further surged since the last MPC meeting.
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Stock market analysts had told The ICIR that the rate hike would negatively impact the equities market, lower investors’ confidence, and possibly erode attractive dividends companies might want to pay.
As of the close of trading on Friday, April 26, investors had lost approximately N3.26 trillion, as the market capitalisation had dropped to N55.51 trillion from N58.78 as of Tuesday, March 26.
In the review period, the All Share Index declined to 98,152.91 bps on Friday, April 26, from 103,952.47 bps as of March 26.
An investment and portfolio analyst, Abel Ezekiel, told The ICIR that with the rate hike, investors would prefer to shift their portfolios from higher-risk stocks to the fixed-income market, where bonds and other fixed-income assets are bought and sold.
“If MPR increases, the rate at which the government wants to borrow money from investors will rise. This will now make investors dump the stock market, bond market, treasury bill, and other fixed-income assets,” he explained.
The tradeoff between equities and fixed-income assets has been evident since the last MPC meeting, even though some analysts believe the Nigerian stock market will likely dip further.
In the period under review, all the sectoral indices trading on the Nigerian Exchange Limited (NGX) floor also declined.
The bank sector index declined by 23.05 per cent from 993.50 bps to 764.50 bps, followed by the insurance index, which dropped by 3.40 per cent from 395.13 bps to 381.69 bps.
The industrial index fell by 2.65 per cent from 4,832.29 bps to 4,704.32 bps, the consumer goods index by 2.51 per cent from 1,611.06 bps to 1,570.61 bps, and the oil and gas index by 1.69 per cent from 1,294.38 bps to 1,272.53 bps.
The CBN rate hike has also dashed the expectation of attractive dividend payouts from quoted companies, especially manufacturing companies posting negative performance in their first-quarter financial results.
On Friday, April 26, The ICIR reported that Nigerian Breweries (NB) Plc reported an N52.09 billion net loss in its first quarter (Q1) of 2024, up from the N10.72 billion loss posted in Q1 2023. This represents a 386.13 per cent loss in its bottom-line performance.
The bearing sentiment in the stock market has resulted in sell-offs and profit booking in some highly-priced stocks and blue-chip companies.
In their weekly market review, Cowry Research analysts anticipate a week of gradual market gains driven by dividend qualifications, noting that entry opportunities emerge due to the market’s oversold condition.
However, the Cowry Research analysts added, “Our outlook remains mixed, contingent on several factors, including macroeconomic reports and foreign exchange market activities.”
Also, analysts at Comercio Partners said, “We expect a positive start to the next session,” despite the dismal performance in the Nigerian stock market.