Nigeria’s stock market, represented by the Nigerian Exchange Group (NGX), encountered a substantial sell-off on Wednesday, with investors grappling with a 1.27% downturn in the benchmark All-Share Index.
This latest decline comes on the heels of a 1.39% loss registered on Tuesday, further exacerbating the bearish trend that commenced earlier in the week.
The market downturn was compounded by the recent announcement from the monetary policy committee of the Central Bank, which decided to raise the monetary policy rate to a historic high of 22.7%, up from 18.75%.
This hawkish stance by the Central Bank significantly impacted market sentiment, resulting in widespread losses across various sectors.
With the exception of the oil and gas index, all major indexes witnessed declines, reflecting the broad ramifications of the elevated policy rates on market dynamics.
Investors, in discussions with Nairametrics, emphasized that the heightened policy rates pose significant challenges for equity markets, directly contributing to the observed sell-offs.
The NGX All-Share Index dipped below the 100,000 points threshold for the first time in over a month, concluding the day at 99,302.57.
Consequently, the market capitalization also plummeted to N54.3 trillion, marking a considerable loss of N700 billion for investors. In just the first three days of trading, stocks have shed N1.5 trillion in market value, underscoring the severity of the market downturn.
Among the major losers were banking sector stocks, particularly the FUGAZ banks — First Bank of Nigeria Holdings (FBNH), United Bank for Africa (UBA), Guaranty Trust Holding Company (GTCO), Access Bank, and Zenith Bank.
Additionally, Fast Moving Consumer Goods (FMCG) stocks such as Nigerian Breweries (NB), Dangote Sugar, and Honeywell witnessed notable declines.
Interestingly, Nestle Nigeria Plc, which earlier reported a N104 billion loss, closed flat, indicating that investors had already priced in these results.
The Central Bank’s decision to increase the benchmark Monetary Policy Rate (MPR) holds significant implications for the financial markets. While such measures are typically aimed at curbing inflation, they can inadvertently dampen investor sentiment toward equities, as higher interest rates tend to favor fixed-income investments over stocks.
This shift in investment preference often triggers sell-offs in the stock market, as evidenced by the recent performance of the NGX.
Meanwhile, the interest in fixed-income assets is expected to surge as investors seek the safety of their investments.
The recent market activity underscores the delicate balance that central banks must maintain between controlling inflation and supporting economic growth. As investors recalibrate their strategies in response to these policy changes, the impact on various sectors of the economy will continue to unfold, offering valuable insights into the interplay between monetary policy and financial market dynamics.
Despite the prevailing bearish trends, Nigeria’s stock market maintains a price-to-earnings ratio of 14.49x compared to Frontier Markets’ 11.45x. Notably, South Africa, Ghana, and Egypt trade at 15.76x, 3.67x, and 14.28x, respectively.
Credit: Nairametrics
