The Nigerian stock lost 5.39 per cent in third quarter (Q3) ended September 30, 2022, as investors’ sentiment toward the market continued to diminish on interest rate hike.
The NGX All Share Index, which tracks the general market movement of all listed equities shed 5.39 per cent to close Q3 on September 30, 2022 at 49,024.16 basis points from 51,817.59 points at which it opened trading on July 1, 2022. Similarly, market capitalisation, the total market value of listed companies’ outstanding shares lost N1.484 trillion, closing lower at N26.451 trillion, compared to the opening value of N27.935 trillion on July 1, 2022.
It will be recalled that the local bourse was in positive momentum from the prior year in the first half (H1) of 2022 with a return of 21.3 per cent. From a quarterly perspective, the market mood was bullish in the two quarters with Q1 returning 10.3 per cent higher than 9.9 per cent in Q2. However, as the market entered Q3 with the MPR hike, investors has continued to take advantage of the rising yield environment in the fixed income space.
During the period the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) voted to increase the Monetary Policy Rate (MPR) by 150bps to 15.5 per cent. In addition, the Committee also voted to increase the Cash Reserve Requirement (CRR) to a minimum of 32.5 per cent while retaining the asymmetric corridor around the MPR and liquidity ratio at +100bps/-700bps and 30.0 per cent respectively.
Speaking on the stock market performance, the vice president, Highcap Securities, Mr. David Adonri said, “Whenever CBN hikes in interest rate to tighten monetary policy, the primary objective is to use it as a short-term tool to bring down inflation.
“However, it can also affect trade-offs in the capital market by shifting the balance between equities and debt. In this case, it causes financial assets to migrate more to debt due to increase in yield precipitated by the interest rate hike. Consequently, the price is likely to fall temporarily in equities until the policy runs its course.
“Monetary policy is a short-term tool to battle a structural economic instability in order to give room for appropriate fiscal policies implementation to address the cause of the imbalance. Therefore, the tightened monetary policy and attendant weakened demand make equities a buyer’s market now.”
Analyst at PAC Holdings, Mr. Wole Adeyeye said “investors may be looking at the risk-free securities in the fixed-income market as we expect yields to increase. Investors may likely sell part of their equity investments to buy treasury bills and bonds. Consequently, bears may dominate the equities market in the third quarter of 2022. Nevertheless, this creates opportunity for investors that want to take advantage of cheap stocks in the market.”
The chief operating officer of InvestData Consulting Limited, Mr Ambrose Omordion, said the market was volatile, mixture of bargain hunting and profit taking in Q3 due to the rate hike.
According to him, the rate hike adjustment has triggered round of sector rotation and selling pressure in the market, as a result of aggressive hawkish monetary policy across the globe, which caused some countries to go back to intervention to prevent the collapse of their economy, as the nation’s high debt profile would not survive this rising rate, especially at the World Bank and IMF continue have warned central banks to rethink and avoid pushing the global economy into recession.
“We see that is already happening in UK, China, Japan and others. It is time for the Nigerian central bank and its Monetary Policy Committee to have a rethink before things goes out of hand.”
He explained that the last quarter of 2022 is finally here, but we need to finish the year strong. The low valuation of NGX, high earnings and dividend yields on improved earnings released so far in the year, coupled with the expectation of third quarter corporate earnings to shape the market direction in the face of inflation hitting 17 years high above 20 per cent, causing many players stay on the fence, waiting to confirm direction before jumping in, as outlook for the economy and the financial market remains unpredictable.
“Despite the lingering high interest rates atmosphere, rising inflation and slowing industrial output as a result of policy changes and uncertainty around the globe, there are sectors, industries and individual stocks that are still seeing positive activities from traders and investors. There are stocks players should pay attention to, as the correction in the NGX index action create buying opportunity in some sectors and individual defensive stocks with high dividend high yield and positive earnings growth,” Omordion said.
