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Interest rate hike trims investors’ wealth by N780bn – VELOXNEWS


By Chinwendu Obienyi

The increase in Monetary Policy Rate (MPR) by the Central Bank of Nigeria (CBN) to 14 per cent from 13 per cent at its last Monetary Policy Committee (MPC) meeting had registered a negative impact on the Nigerian stock market with investors’ wealth down N782 billion at the end of July 2022.

Daily Sun investigations revealed that the drop in the value and size of companies quoted on the Nigerian Exchange Limited (NGX) emanated from the Central Bank of Nigeria, MPR decision that forced investors to divest to the fixed income market where the interest rate was much more attractive.

According to its key performance indicators on the NGX, the All Share Index (ASI) declined by 2.82 per cent to close at 50,370.25 points from 51,829.67 points at which it opened trading for the month.

Meanwhile, market capitalisation for the period under review fell by N782 billion to N27.163 trillion from N27.945 trillion. The market in July had also witnessed weeks of sentiment trading by investors amid corporate earnings for the first half (H1) of 2022 by fundamental companies.

Although, Monday’s session started the new trading month of August 2022 on a bearish note, Tuesday’s 1.35 per cent rebound due to the release of more H1 2022 earnings brings optimism the market will return back to positive territory as investors hunt for bargains in fundamentally sound stocks with a consistent history of interim dividend payments.

Analysts at Cordros Research said, “Notwithstanding, we envisage intense selling pressures on stocks of companies that grossly underperform in H1 2022. Overall, we reiterate the need for positioning in only fundamentally sound stocks as the weak macro environment remains a significant headwind for corporate earnings.

For his part, a securities  trader, at  APT Securities and Funds Limited, Jamiu Mohammed, noted that the performance of the market was due to the hike of the MPR in the economy.

According to him, “What this implies is that whatever is the rate in the market, will have a negative or positive impact on what is happening in the equities market. This is why we also saw investors shift to a risk free environment and go for fixed income instruments”.

While stating that the rate in the fixed income market is not in sync with 18 per cent inflation in the economy, Mohammed said that a gain of 17 per cent year-to-date for the equities market is not bad at all despite the 3 per cent loss in the market last week.

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