Nigerian Stocks snapped a 7 day losing streak to post a modest gain of 0.53% as investors reacted positively to the cut in both CRR and MPR following the meeting of the CBN Monetary Policy Committee. The CBN on Tuesday cut CRR to 20% from 25% and also reduced MPR from 13% to 11%. The Nigerian Stock Exchange market capitalization has been on a losing streak for most of November posting 13 straight losses out of a possible 17 days of trading.
Analyst surveyed by Nairametrics suggest that the gains posted today may be as a result of the lower yields currently available in the money market. Since the CBN introduced its ‘dovish’ policies of cutting CRR last month rates have fallen by more than half as billions of naira filter into the money market via banks. Investors are thus more likely seeking better returns in the stock market. An analysts informs Nairametrics that stocks are currently mostly undervalued and as such investors believe a bargain opportunity exist that can provide higher returns at the shortest possible rates. To buttress this view, a look at the top 10 gainers on Wednesday shows the likes of Dangote Cement, GT Bank, Access Bank, Transcorp, Nigeria Breweries etc. all posting significant gains. Investors typically pour money into more established companies and it is not a surprise to see that they boosted the positive returns posted by the Index.
90 day Treasury Bill yields at the close of business Wednesday was at 2.17% whilst 10 year bonds yields were averaging 10%. This perhaps suggest that the stock market will remain a destination of choice for investors seeking higher short term returns. Despite this returns, the rally in the market is unlikely to remain as investors are expected to take off profits as soon as rates begin to rise again. The argument is that regardless of what the CBN does with rates, inflation and the fear of a further devaluation will continue to make investors wary of lies ahead especially for stocks and other riskier investments.