NSE Roundup! Equities lose N175b as investors weigh monetary policies

Quoted equities remained largely under pressure last week in spite of the Tuesday cut in the benchmark interest rate by the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN). Benchmark indices at the Nigerian Stock Exchange (NSE) indicated a negative week-on-week return of -1.83 per cent, equivalent to a loss of N175 billion within the five-day trading sessions.
The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) had on Tuesday after its two-day meeting, slashed the MPR, which serves as benchmark for interest rates, from 13 per cent to 11 per cent, with an asymmetric corridor of +2 per cent and -7 per cent. The apex bank also reduced Cash Reserve Requirement from 25.0 per cent to 20.0 per cent.
The stock market has a strong link with the monetary system. Banking stocks dominate the Nigerian stock market as the most active subgroup, in terms of volume of activities, and they equally have high influence within the top stocks that determine the direction of overall market. Besides, foreign portfolio investors-which account for the larger part of transactions at the stock market, depend on monetary policy variables of foreign exchange and inflation management to determine their risk-return profiles.
Analysts have pointed out that Tuesday’s monetary policy decisions might in the short term be a double-edge policies for the banking sector. Loan expansionary drive is expected to task risk management of the banks and raise possibility of bad loan spike while reduction in interest rate would reduce interest incomes.
“We anticipate interest income earned by banks on investment securities and loans to reduce in the first quarter of the year as banks adjust to the lower primary auction rates in T-bills and bonds markets and reduced interbank rates. Cost of Funds will reduce but only marginally,” Afrinvest Securities, a Lagos-based securities firm, stated.
According to analysts, the CBN’s action to buoy aggregate demand side of the economy by increasing liquidity levels and reducing market rates will have a feedback effect on price and exchange rate stability in the short to medium term. As the CBN has remained resolute in its resolve to keep administrative measures in place to reduce depletion in foreign exchange reserves and create a contrived stability in interbank forex rates, the effects would be felt in the parallel market for forex where rates would further depreciate.
Afrinvest Securities suggested a conservative parallel forex rate of N255/$1, noting that the strong pass-through of lower exchange rate on consumer prices in Nigeria suggests high inflationary pressure is inevitable in the short to medium term.
Analysts noted that the relaxed monetary stance of the MPC after its last meeting for the year, though positive for stimulating short-term economic growth, may not come without negative implications for the economy in the medium term. With the reduction in interest rate, Nigeria is likely to face increased capital flight consequences in the medium to long term, more so if the US Fed raises its benchmark interest rate at its next meeting in December.
“Following the decision of the MPC, we noticed a re-pricing of stocks in the equities market during the week as investors sold down on banks relative to other sector. Equally, the spike in financial market liquidity resulting from the reduction in CRR to 20 per cent as well as the expansionary 2016 fiscal year may further trigger inflationary pressure. While the decisions by the MPC ensued from a need to grow the real sector through increased lending by banks, we believe risk considerations in the overall economy may force banks to remain conservative at expanding their loan books,” Afrinvest Securities stated.
But reduction in fixed-income returns may also stimulate demand for quoted equities, where most stocks have been substantially undervalued and many now paraded dividend yields in almost double digit.
The balance of expectation continued to foster cautious trading at the stock market, with the lingering negative sentiments still dominating transactions. Aggregate market value of all quoted equities on the Nigerian Stock Exchange dropped to N9.495 trillion at the weekend, representing a loss of N175 billion on the opening value of N9.670 trillion recorded at the beginning of the week. The All Share Index (ASI)-the common index that tracks prices of all quoted equities, declined by 1.83 per cent to close the week at 27,617.45 points as against its week’s opening index of 28,131.28 points.
The decline last week worsened the negative average year-to-date return to -20.31 per cent, implying that investors have so far this year lost more than one-fifth of their investment portfolios. There were 41 decliners during the week as against 21 advancers while 128 stocks closed flat.
The troubled Dangote Flour Mills, which recently changed its name to Tiger Branded Consumer Goods Plc, recorded the highest loss of 17.65 per cent to close at N1.54. Unity Bank followed with a drop of 11.30 per cent to close at N1.02 while May and Baker Nigeria declined by 10.48 per cent to close at 94 kobo.
Total turnover stood at 1.04 billion shares worth N13.01 billion in 13,407 deals last week compared with a total of 793.557 million shares valued at N7.15 billion traded in 12,831 deals two weeks ago. Financial services sector remained atop activity chart with a turnover of 857.05 million shares valued at N6.77 billion traded in 7,916 deals; representing 82.4 per cent of total turnover volume. The consumer goods sector followed with a turnover of 64.55 million shares worth N4.22 billion in 2,479 deals. The conglomerates industry sector placed third with a turnover of 62.745 million shares worth N585.655 million in 638 deals.
The trio of FBN Holdings Plc, Zenith International Bank Plc and Diamond Bank Plc accounted for 475.12 million shares worth N3.68 billion in 3,026 deals, representing 45.7 per cent of total turnover volume. Also, a total of 49,895 units of Exchange Traded Products (ETPs) valued at N916,710 were traded in 38 deals compared with a total of 2,143 units valued at N1.734 million traded in 35 deals in the previous week. A total of 8,262 units of Federal Government Bonds valued at N9.151 million were also traded in seven deals.
On the upside, Ikeja Hotel recorded the highest gain of 12.27 per cent to close at N3.66. Unilever Nigeria followed with a gain of 9.68 per cent to close at N39.90 while Caverton Offshore Support Group rose by 9.28 per cent to close at N2.59 per share.

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