Nigerian Stock Market Investors’ Lose N1.49 Trillion In Two Days Over Interest Rate Hike

The stock market segment of the Nigerian Exchange Limited (NGX) dropped by N1.49 trillion in two days following the hike in the interest rate.

The Monetary Policy Committee (MPC) on Tuesday, increased the Monetary Policy Rate (MPR) to 22.75 percent from 18.75 percent, which saw the stock market witnessing negative sentiment as investors are now shifting to the fixed income market.

When the MPR hike was announced on Tuesday, the stock market dropped by N773 billion, triggered by investors’ sell-off in fundamental stocks.

Also, the stock market on Wednesday extended its negative sentiment, dropping by N720.57 billion in market capitalisation to N54.317 trillion, bringing investors’ total loss in two days to N1.49 trillion.

The MPC members after the two-day meeting in Abuja, had increased the asymmetric corridor to +100 basis points /-700 basis points (Previously: +100 basis points /-300 basis points).

The members also voted to increase the CRR to 45 percent from 32.5 percent; and retained liquidity rate at 30 percent.

The CBN Governor, Olayemi Cardoso after the MPC meeting stated that the committee’s decisions were centered on the current inflationary and exchange rate pressures, projected inflation, and rising inflation expectations.

“Members were concerned about the persistent rise in the level of inflation and emphasised the Committee’s commitment to reverse the trend as the balance of risk leaned towards rising inflation.

“The Committee, however, acknowledged the trade-off between the pursuit of output growth and taming inflation but was convinced that an enduring output expansion is possible only in an environment of low and stable inflation,” he had added.

As the stock market extended its losses, the share prices of the likes of Guaranty Trust Holding Company Plc, (GTCO), Zenith Bank Plc, United Bank for Africa (UBA) among others declined.

For instance, GTCO share price dropped by 8.86 percent from N39.50 per share it opened for trading this week to N36.00 per share, while Zenith Bank closed trading at N32.45 per share, dropping by 8.07percent from N35.3 per share it opened for trading this week. 

In addition, UBA’s stock price closed trading on Wednesday at N20.50 per share, a decline of 13.9percent from N23.80 per share it opened for trading this week.

On their part, a group of analysts at Cordros Research said, “Before the meeting, we noticed that the increase in yields in the fixed-income market reduced interest in equities, particularly among domestic institutional investors.

“Following the unexpected 400bps hike in the MPR by the MPC, we anticipate a further negative impact on the equities market performance in the short term. Indeed, the stock market closed with a 1.4percent decline today, likely due to negative sentiment from investors, as rising fixed income yields typically reduce the appeal of equities.

“Overall, the MPC’s hawkish stance is expected to further heighten risk-off sentiments in the local market, as domestic investors, who make up the majority of market participants (c.92.0percent as of January 2024), may opt for safer assets amid rising fixed income yields.

“Consequently, we anticipate a prolonged bearish market trend driven by yield movements and the uninspiring corporate earnings reported thus far.”

Kayode Tokede