" /> Stock market in danger over high interest rate | Hallmarknews
Published On: Mon, Aug 15th, 2016

Stock market in danger over high interest rate

The Central Bank of Nigeria’s recent 200 basis point hike in Monetary Policy Rate (MPR) from 12 per cent to 14 per cent per annum is 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 has already dipped from N9.62 trillion at the week ended July 29, 2016 when the Central Bank of Nigeria (CBN) announced the increment in the Monetary Policy Rate to N9.36 trillion last week.

Mr Kayode Tinuoye, team leader, UBA Capital in a telephone interview told Business Hallmark (BH) 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.

Five year treasury bonds pay coupons of 18% of face value or 1.3% ahead of domestic inflation.

“It is true that the high interest rate is dragging funds away from the equities market. As you can see Treasury bills rate are about 20 per cent for some maturities. Even though when the policy was announced initially, investors received it in a positive light with the hope that the increase in interest rate would encourage foreign investors to come back to the market.

“But since that did not materialize, investors are beginning to shift attention from the capital market to the fixed-income market,” he asserted.

Tinuoye pointed out that the equities market is not only battling with the impact of the higher interest rate, saying the negative Q2 results released by most of the listed companies is also weakening investors’ confidence in the market.

He 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.

Tinuoye concluded that the market would trade lower for the remaining part of the year.

“This is because foreign portfolio investors are yet to return to the market and they are not likely to come back until the current situation in the foreign exchange market improves compare to what we have now.

“And the kind of results companies have been turning out have not been encouraging and we expect something similar to play out in the third quarter,” he stated.

Dr Vincent Nwani, Director, Research and Advocacy, The Lagos Chamber of Commerce and Industry (LCCI), explained that theoretically, whenever money market return is higher, investors in the capital market move money to the fixed-income market in order to enjoy higher and safer returns.

He added that there is always an inverse relationship between the money and equity markets.

“What the new interest rate does is that it encourages savings because people want to take advantage of higher interest rates.

“Even foreign investors who reap from volatile exchange rate environmentsbecome attracted to bond and Treasury bill markets” he reasoned.

He said this would impact the equity market negatively and the bearish sentiment may continue till the end of the year.

He expressed disappointment in the hike inpolicy rate, saying in other parts of the world, when a country is in recession, interest rate is often lowered to encourage spending in order to reflate the economy.

“Funds will seek for less risky investment windows. As expected, increase MPR means that increased yield on fixed interest financial instruments. The problem is that equity market has not been returning enough to compensate for investors risks”, says JideFamodun, a consultant.

He said that the market is already facing critical issues with investors losing billions of Naira. As a result, it is expected that some of these investors would reshuffle their portfolio to key into juicy – as CBN just made it – gilt edge market.

“You know what these mean for investment? CBN has just attached high yield to low risk investment and tentatively accommodate trending inflation rate into bond pricing”, he added.

The naira has been on a free-fall since the apex bank introduced the flexible forex policy at the end of June, trading N310 against the dollar at the interbank market at the close of work on Friday.

The country’s currency exchanged record N400 to a dollar at the parallel market, while the pound and euro went for N510 and N425 respectively.

Between June 28 when the flexible forex policy came into effect and last Friday, the naira has lost almost 10 per cent of its value.



Reactions from Facebook

comments and opinions

Leave a comment

XHTML: You can use these html tags: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

Recent posts

  • IPOB: Igbo elders keep mum over crisis

    Obinna Ezugwu   Mayhem! There is no better word to describe the events playing out in the South East zone, and Abia State, the home state of rabble rousing leader of the Indigenous Peoples of Biafra (IPOB) in particular at the moment. It has to do with the intense military onslaught and the result has […]

  • Nigeria returns to African Trade Insurance Agency

    Federal Executive Council on Wednesday gave a approval for Nigeria to rejoin the African Trade Insurance Agency. Minister of Finance, Mrs. Kemi Adeosun stated this Wednesday while addressing State House correspondents after the Federal Executive Council meeting presided over by President Muhammadu Buhari. Adeosun said the council approved a memo she presented which harped on the necessity […]

  • Fidelity Bank to give out over N110 Million to Customers in ‘Get Alert In Millions Promo Reloaded’

      Top Nigerian lender, Fidelity Bank Plc is set to delight the banking public with the introduction of a fresh Savings promo that promises to provide new and existing customers with the unique opportunity to win fantastic cash prizes within a specific period. The promo dubbed ‘Get Alert In Millions Promo Reloaded’ is in line […]

  • Royal Exchange defies the odds   

    EMEKA EJERE Royal Exchange Insurance Plc has continued to resist the volatile and tough operating environment of Nigeria, recording a double digit growth in half year profit. Despite the hostile operating environment experienced by the insurance sub-sector and the financial services industry, the underwriter last week announced profit after tax (PAT) of N203.3 million in […]

  • STANBIC IBTC constructs recovery after a storm

    Stanbic IBTC Holdings came to being as a result of a merger between Stanbic Bank Nigeria Limited and IBTC Chartered Bank Plc. On 24 September 2007, IBTC Chartered Bank Plc merged with Stanbic Bank Nigeria Limited. Stanbic Africa Holdings Limited on behalf of Standard Bank tendered an offer for the acquisition of additional IBTC shares […]

  • How PZ makes investors beg for more but….

    Full year results for PZ-Cussons ended on a happy note in May as the company’s profit after tax soared by a hefty 73 per cent rising from N2.1 billion in 2016 to N3.7billion in 2017. The company’s fairy tale result has had several investors emptying their piggy banks as the company’s share price jumps on […]

  • Mama Taraba: A vote of no confidence on President Buhari

    Obinna Ezugwu At Wednesday’s Federal Executive Council meeting, Minister of Women Affairs and Social Development, Senator Aisha Jummai Al-Hassan, alias Mama Taraba was the cynosure of eyes. It was only a week prior that she rattled not only President Muhammadu Buhari, but the ruling All Progressives Congress (APC) when she spoke these words: “Your excellency, […]

  • Military don’t have power to control social media —Tony Momoh

    Prince Tony Momoh is the former Minister of Information between 1986 and 1990 under the military administration of Gen. Ibrahim Babaginda and was instrumental to the establishment of the Advertising Practitioners Council of Nigeria (APCON) by Decree 55 of 1988. In this interview with UCHE AKOLISA, Momoh traces the history of the body that regulates […]

  • Maritime experts petition President Buhari over arms import

    By Funso Olojo A maritime expert, Lucky Amiwero, has decried the destination inspection regime of cargo inspection as the cause of the proliferation of arms imports into the country. It would be recalled that the Nigeria Customs Service made a huge arm seizure at the Tin Can Island port last week Monday with the discovery […]

  • Stakeholders pressure for interest rate reduction as MPC meets

    FELIX OLOYEDE Manufacturers, haunted by falling operating margins, have made strident calls for the Central Bank of Nigeria (CBN) to immediately reduce local interest rates. The plaintive appeal is coming on the sidelines of the CBN’s monetary policy committee (MPC) meeting for the month of September 2017. According to results of a 2017 Manufacturing Sector […]

  • Cloud over Oando AGM; Auditors query accounts

    By Okey Onyenweaku   Controversy has continued to trail Oando Nigeria’s 40th Annual General Meeting which was held last week at the Ibom Hall in Uyo, Akwa Ibom State. While the company’s resolutions which re-elected its directors were seemingly successful, shareholders were divided over the continued leadership of the management. Shareholders have expressed mixed feelings over […]

  • Planned rehabilitation of refineries challenges past experience of state control

              The state of the country’s refineries is so decrepit that any attempt to delay in selling them would amount to a desire to sell scraps. Though the senate agreed that it should be repaired, and the group managing director has already set up seven committees for total turn around at optimum capacity by 2019, […]

  • Anambra 2017: The godfathers confront power of incumbency

    Obinna Ezugwu   Last week at a People’s Democratic Party (PDP) stakeholders meeting in Awka, the Anambra State capital, the immediate past governor of the state, Mr. Peter Obi vowed to aggressively prosecute the November 18 governorship election in the state. “I will be at the forefront of the Anambra governorship election, and we will […]

  • Nigerian pastors: The call of God or mammon?

    ADEBAYO OBAJEMU Obafemi Ayoade, a dealer in building materials has no kind words for Nigerian pastors. He justifies his uncomplimentary view of ‘’these men’’ of God by sharing his experiences with BusinessHallmark.  Ayoade had been married for 10 years without a child, a Muslim he went from one Alfa (Muslim preacher) to another in search […]

  • How Nigeria is shared: Buhari vs Jonathan

    OBINNA EZUGWU   Few days ago, Nigeria’s president, Muhammadu Buhari appointed 15 individuals into managerial positions in the Nigerian National Petroleum Corporation (NNPC), ten of them from the North- mostly Hausa/Fulani from the North West and North East; five from the South – three from the South West, two from the South South and none […]

  • Rising NPL: Banks cut loans, opt for fixed income in H1 2017

    FELIX OLOYEDE Nigerian economy which has struggled to exit recession may be sitting on a keg of gun power as banks cut down credits to the private sector in the bid to push down soaring non-performing loans (NPLs). Review of the 2017 half year financial results of commercial lenders in the country showed that the […]

Visit us on Google+