As low sentiment continues to deepen on the nation’s equities market, compounded by the hike in interest rates, selling pressure was witnessed on shares of Zenith Bank Plc, Access Holdings Plc, FBNH Plc, UBA Plc, and GTCO Plc, two days after the announcement of the rates increase, has resulted in financial institutions losing about N58.270 billion at the close of trading yesterday.
Rising interest rates are generally good news for bank stocks because it helps them to expand their net interest margins, but it seems that may be in the near term. As the build-up to 2023 elections intensifies, volatility in the economy is taking a toll on stocks.
Though the Nigerian equities market closed yesterday’s trading session on a positive note with the NGX-ASI gaining 10.25 basis points or 0.02% to 49,171.70 points, the banking index shed 6.35 basis points or 1.65% to close at 378.23 index points from the opening figure of 384.58 points on 27th of September.
Checks by Nairametrics showed that Access Holding Plc dropped by 7.38% to N8.15 per share from N8.80, which was the opening share price on 27th September, while GTCO Holdings Plc shed 4.51% to N18.00 per share from a share price of N18.85 at the commencement of the current year trading on September 27. UBA Plc dropped by 1.39% to N7.10 per share from N7.20 per share it opened trading on Monday 27 September. FBN Holdings dropped by 1% to N10.00 per share, from N10.10 per share during the period under review; while Zenith Bank Plc trailed with a decline of 0.5% to N19.90 per share from N20.00 per share.
Market operators have said that the decision of the Central Bank of Nigeria (CBN) to increase the interest rate by 15.5% would further depress investors’ appetite for equities to embrace money market instruments.
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The operators who spoke with Nairametrics said that the investors will migrate their financial assets away from equities to money market instruments.
The MPC voted to increase interest rates to 15.5% as the apex bank fights rising inflation.
The Central Bank, during its last MPC meeting, had increased the interest rate from 14% to 15.5% in a bid to combat the rising cost of goods and services.
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According to them, when the interest rate is low, speculators move their funds from money market instruments to the stock market for higher yield, just as they move from stocks to other asset classes, especially money market instruments when the interest rate is high.
Performance of the banks’ share prices
Access Holding Plc closed its last trading day at N8.15 per share and N289.693 billion in market capitalisation on the Nigerian Exchange (NGX) as against N8.80 per share and N312.797 billion in market capitalisation at the beginning of trading on September 27, hence has lost N23.104 billion or 7.38%.
GTCO Holdings Plc also closed its last trading day at N18.00 per share and N529.761 billion in market capitalisation on the Nigerian Exchange (NGX) in contrast to the opening figure of N18.85 per share and N554.777 billion in market capitalisation at the beginning of trading on 27th September. The bank has since lost 4.51% and N25.016 billion in market capitalisation.
UBA Plc also closed the last trading day at N7.10 per share and N242.815 billion in market capitalisation, compared to the opening figure of N7.20 per share and N246.235 billion in market capitalisation, hence, has lost N3.419 billion or 1.39%.
FBN Holding closed its last trading day at N10.00 per share and N358.952 billion in market capitalisation on the NGX as against N10.10 per share and N362.542 billion in market capitalisation at the beginning of trading on September 27, hence has earned a loss of N3.589 billion or 1%.
Zenith Bank Plc closed its last trading day at N19.90 per share and N624.790 billion in market capitalisation on the NGX as against N20.00 per share and N627.929 billion in market capitalisation at the beginning of trading on September 27, hence has earned a loss of N3.139 billion or 0.5%.
What investment analysts said
Mr. Victor Chiazor, head of research and investment, FSL Securities Limited, speaking to Nairametrics, said with the increase in interest rate, it is expected that all the stocks will definitely be hit hard.
“Investors just need to be patient; some banks like GTB and Zenith will definitely bounce back, but that will be when the market recovers, when inflation eases and hawkish stance by the CBN is reversed, then we will start seeing reversal from the fixed income securities.
There is no need for investors to offload their shares if they have patience and capital. Once the economy recovers, the market will be revived, the best idea is to put the idle fund to the equity market and be patient for a bumper yield”
Mr. David Adonri, executive vice chairman, Hicap Securities Limited, had said when interest rates rise, investors tend to migrate to fixed income securities.
“The hike is capable of migrating financial assets away from equities to fixed income; expect investors to sell down their shares in the near term. Both equities and fixed income operate on yield. With the increase in the interest rate the yield in fixed income will be higher and investors will move there until the price of equities falls to be competitive with the debt market. If the economy improves and inflation starts dropping it will then favor the equities market and we will start seeing stabilization”.