The Nigerian capital market analysts have said the last hike in Monetary Policy Rate (MPR) from 12 per cent to 14 per cent per annum have been having perverse impact on the Nigerian stock market as investors continue to dump equities and turn their attention to alternative fixed-income securities.
Stock market capitalization dipped by N114 billion from July 26, 2016 when the Central Bank of Nigeria (CBN) announced the increment in the Monetary Policy Rate to N9.454 trillion as at September 7, 2016.
The Central Bank sells treasury bills on a bi-weekly basis to investors using the amount raised to fund government expenditure or control money supply in the economy. Treasury Bills rates have been increasing in the last few weeks due to government borrowing, rising inflation rate and the exchange rate.
In the latest auction, treasury bills rates spiked to as high as 14.33 per cent while true yields were about 17 per cent per annum for a 365 days investments.
The managing director of Highcap Securities Limited, Mr. David Adnori said “With so much uncertainty and volatility in the stock market, the attractive yields in the money market could severely impact on the value if stocks.
“Rather than invest in stocks with most dividends payment set for early next year, some investors are more likely going to invest in risk free treasury bills that offer safer and stronger rate of returns over risky equities.”
Analysts at United Capital said that the rate increase has turned investors’ sentiments against local stocks as a growing number of them opt to buy bonds and treasury bills with guaranteed coupons and significantly lower risks.
They pointed out that the equities market is not only battling with the impact of the higher interest rate, saying the negative results released by most of the listed companies is also weakening investors’ confidence in the market.
The managing director of APT Securities and Funds Limited, Mallam Kurifi Garuba also explained that the negative reaction of portfolio investors to the flexible forex policy, which was supposed to motivate them to return to the capital market, is partly responsible for the bearish orientation of the market.