The increase in the Monetary Policy Rate (MPR) by the Central Bank of Nigeria (CBN) to 14% recently caused the value of investors’ investment in the Nigerian stock market to plummet by N782 billion in July 2022.
This drop in value came as the apex bank’s decision on the MPR forced investors to divest in the fixed income market where the interest rate is attractive.
The Nigerian Stock Exchange (NSE) key performance indicator, the All-Share Index (ASI), fell 2.82% to close at 50,370.25 on July 31, 2022, from 51,829.67 points at which he opened trading for the month.
Meanwhile, the market capitalization for the period fell N782 billion to N27.163 trillion from N27.945 trillion.
The stock market in July witnessed weeks of trading sentiment from investors amid impressive corporate earnings for the six months ended June 30, 2022 by some fundamental companies.
Capital market analysts attributed the drop during the month to the increase in the Central Bank of Nigeria (CBN) monetary policy rate (MPR) to 14%, which forced investors to divest from the market. fixed income securities where the interest rate is attractive. .
They also noted that in the run-up to next year’s general elections in the country, prevailing insecurity and economic uncertainties through rising inflation and interest rates, in the face of devaluation of the naira and soaring national debt, are major sources of concern among equity players and fixed income investors at this time.
Speaking on the performance of the stock market in July, Professor of Capital Markets at Nasarawa State University in Keffi, Prof. Uche Uwaleke said that “the rise in MPR in quick succession of 11.5 % at 13% in May and now at 14% could signal panic on the part of the CBN and increase uncertainty.
According to him, this policy orientation cannot necessarily curb the inflationary pressure given that the pressure does not come from monetary factors but from the high costs of petroleum products, electricity and insecurity, as well as from the rise in the rate. change.
“So expect to see in the coming months a higher cost of borrowing, a widening public deficit, slowing economic growth, rising unemployment and a bearish stock market,” he said. declared.
Highcap Securities Vice Chairman Mr. David Adonri said, “Whenever the CBN raises interest rates to tighten monetary policy, the main objective is to use it as a short-term tool to lower inflation.
“However, it can also affect capital market arbitrages by changing the balance between equities and debt. In this case, it causes financial assets to migrate further into debt due to the precipitous increase in yield by rising interest rates, therefore the stock price is likely to temporarily decline until the policy has run its course.
“Monetary policy is a short-term tool to combat structural economic instability in order to make room for the implementation of appropriate fiscal policies to address the cause of the imbalance. As a result, the tightening of monetary policy and the consequent weakening of demand is now making equities a buyer’s market.
PAC Holdings analyst Mr Wole Adeyeye said: “Investors may be looking to risk-free stocks in the fixed income market as we expect yields to rise. Investors can probably sell some of their equity investments to buy treasury bills and bonds. Therefore, the bears could dominate the equity market in the third quarter of 2022. Nevertheless, this creates an opportunity for investors who want to take advantage of cheap stocks in the market.
Analysts at Afrinvest Limited said: “In August, we expect continued macroeconomic headwinds and rising bond yields to maintain bearish equity market momentum despite impressive first-half 2022 results from large companies.”