Nigeria’s Equity Market Records First Decline After CBN’s Rate Hike, Investors Lose N267bn

Nigeria’s equity market saw a 0.47% drop on Thursday following the Central Bank’s decision to raise the Monetary Policy Rate.

Equity Market Reacts to CBN Rate Hike

Nigeria’s equity market experienced its first decline on Thursday after the Central Bank of Nigeria (CBN) raised the Monetary Policy Rate (MPR) earlier in the week.

The market, which had held steady since Tuesday, dipped by 0.47%, causing investors to lose N267 billion by the close of trading. Stocks such as Okomu Oil Palm, Cadbury, and Caverton led the market downturn.

The impact of the rate hike, which saw the MPR increase by 50 basis points to 27.25%, was evident in the market. This move, the fifth hike this year, also raised commercial banks’ Cash Reserve Ratio (CRR) by 500 basis points to 50%.

Investors React to Market Decline

Commenting on the drop, equity market participant, Chinedu Okoye, said, “The equities market has reacted as expected.

A rate hike usually puts pressure on stocks, particularly when investors are still adjusting to the news.”

Okomu Oil Palm saw the biggest loss, with its share price dropping from N393 to N363, a 7.63% decrease. Cadbury also saw a significant drop, falling by 9.39%, while Caverton lost 9.73% of its share value. These losses contributed significantly to the overall decline in the equity market.

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Equity Market Shift and Investor Sentiment

According to Meristem research analysts, the continued tightening by the CBN is designed to curb inflation and stabilize the market.

They said, “The equity market may not see a mass shift in capital, as many investors are still driven by the fundamentals of the companies they invest in. However, there could be moderate effects on fixed-income yields.”

This sentiment was echoed by Femi Otedola, chairman of FBN Holdings, who recently increased his stake in the company.

Otedola purchased 534 million shares at N30 per share, amounting to a N16 billion investment. Despite the recent challenges, Otedola remains optimistic about the market, stating, “My investment in FBN Holdings is a reflection of my long-term confidence in the company and the market.”

Equity Market Outlook Post-MPR Adjustment

Analysts at Comercio Partners also weighed in on the equity market’s response to the recent policy adjustment. “While higher yields on bonds may attract new investors, existing bondholders could face capital losses due to lower-yielding bonds,” they explained.

The Nigerian Exchange Limited (NGX) All-Share Index (ASI) dropped from 98,987.42 points to 98,523.56 points. In the same period, equities market capitalisation decreased from N56.881 trillion to N56.614 trillion.

Despite the challenging environment, UBA, Access Holdings, Honeywell Flourmills, Sterling Financial Holdings, and Zenith Bank remained some of the most actively traded stocks in the market on Thursday.

Market Recovery Possibilities

Analysts remain divided on whether the equity market will recover quickly from this decline. Some believe that investor sentiment could stabilize as the effects of the MPR hike become clearer.

Others suggest that the market could see further declines in the coming days as investors adjust their portfolios.

“The market is still reacting to the CBN’s decision, and we expect to see some volatility in the short term,” Okoye added. “However, long-term investors who stay focused on company fundamentals should see opportunities even in this environment.”

For now, the market remains in flux, with both traders and analysts closely watching future developments as the full impact of the CBN’s policy change unfolds.