MPR, others drag equities down as investors look to fixed income market

By Chioma Obinagwam

The Nigerian equities market witnessed a lull in the previous week (week ended August 3, 2018) as the key measurement indicator of the Nigerian Stock Exchange (NSE)- the NSE All-Share index recorded a decline of 137.30 basis points (bps) or 0.37 per cent to settle at 36,499.67 bps.

The NSE All-Share index is a series of numbers which shows the changing average value of the share prices of all companies on the exchange, used as a measure of how well the market is performing.

Analysts at Afrinvest (West Africa) Limited, a wealth advisory firm attribute the downward trend as one of the consequences of the Central Bank of Nigeria’s ( CBN’s) decision to maintain Monetary Policy Rate (MPR) at 14 per cent at its recently concluded 262nd Monetary Policy Committee (MPC).

MPR is an interest rate at which CBN lends to commercial banks and other clients.

The analysts noted that retaining the rate meant that the fixed income side of the market (money markets, bonds, Commercial Papers etc) would be more attractive to investors.
Review of activities in the money market showed that liquidity levels witnessed an uptrend.

” Liquidity levels remained robust despite T-bills and OMO auctions which cumulatively mopped up N578.6 billion. System liquidity opened the week at N188.0 billion, significantly lower than N607.8 billion at the close of the previous week, but increased to N395.1 billion by the end of the week,” the analysts reported.
“Equities continue to suffer from foreign capital outflows and in the absence of a positive trigger in the domestic market, we expect investors to continue to trade cautiously,” the analysts continued.

They added that profit taking was another reason for the lull in the equities market in the period under review.

“Activities in the domestic equities market were majorly determined by investors’ reaction to corporate earnings which triggered bouts of profit taking as well as bargain hunting, especially in bellwethers, during the week,” the analysts disclosed.

Expectations for the current week
Equities market in the current week is expected to assume a positive trend on the heels of reactions to the release of more half year (H1:2018) results of listed companies on the NSE.

“Nonetheless, we expect a bullish performance this week as investors anticipate positive H1:2018 earnings of bellwethers yet to release theirresults,” Afrinvest predicted.

Corroborating, David Adonri, Managing Director (MD) of Highcap Securities noted that the market reacts to price sensitive information, adding that the release of the H1:2018 result is a major catalyst in this regard.

Stockbroker and Chief Relationship Officer at Foresight Securities limited, Charles Fakrogha holds a similar view.

He noted that although the insecurity in the country is a major disincentive to capital inflows, the release of the half year results would spur a positive direction.

Moreover, as more half year results trickle into the market, stakeholders are hoping that the information will be strong enough to trigger a reaction in the positive direction.