Some market operators have said that expectation of high returns in terms of dividends from companies yet to release their full-year 2022 financial results, will delay investors from migrating to fixed-income securities in the near term.
This is contrary to the expectations that the latest rate hike by the CBN to 17.5% would further dampen investors’ demand for the equities market and encourage them to navigate towards the fixed-income market.
Operators give reasons: The operators who spoke with Nairametrics said that there is still high liquidity in the system coupled with the expectation of year-end dividend payment. According to them by the time CBN take action to reduce the liquidity in the system such as issuance of bonds and investors are done with raking in dividend, the impact of the rate hike would be pronounced.
Increase in benchmark interest rate: The monetary policy committee of the Central Bank of Nigeria voted in its January 2023 meeting to raise its benchmark interest rate to 17.5% from 16.5%.
Godwin Emefiele, the CBN governor, announced this at a press briefing following the end of the monetary policy committee meeting held on Tuesday, 24th January 2023.
This is the first interest rate hike in 2023 and it suggests that the apex bank is continuing with the hawkish rate policy started in 2022. Recall that the CBN had raised interest rates by a cumulative 500 basis points last year in a bid to tame the rising inflation rate in the country.
The decision to further tighten the monetary policy rate was made despite the moderation of the headline inflation rate in December 2022 to 21.34% from 21.47% recorded in the previous month.
According to the CBN governor, a marginal decline in the inflation numbers printed in December is not enough to begin to celebrate, which influenced the decision in favour of raising as opposed to a hold or loosening decision.
Marginal impact on the market: trading activities on the floor of the Nigerian Exchange Limited (NGX ) on Wednesday finished with mixed performance, amidst marginal loss as the benchmark index lost 0.02% to close at 52,599.65 points.
Losses recorded by MTNN which stood at-0.43%, Access Holdings with a loss of -0.55% and Geregu Power (-5.90%) submerged the gains in Tier-1 banking such as GTCO (+1.25%) and Stanbic IBTC (+1.56%) leading to a marginal loss in the market.
Consequently, the ASI’s year-to-date (YTD) return fell to 2.63%, while the market capitalization shed N7.03 billion to close at N28.65 trillion.
Further analysis of the day’s market activities showed trade turnover settled lower relative to the previous session, with the value of transactions down by 44.22%. A total of 119.84 million shares valued at N2.69 billion were exchanged in 3,552 deals. MBENEFIT (+6.06%) led the volume chart with 11.26 million units traded while Geregu Power (-5.90%) led the value chart in deals worth N3.20 billion.
The Managing Director, of Arthur Steven Asset Management Limited, Mr Olatunde Amolegbe reacting to the development in a chat with Nairametrics said the reaction from investors to migrate to the fixed income security will not be immediate because the system liquidity in the market is relatively high at the moment.
He noted that by the time CBN start taking action to reduce the system liquidity such as issuance of bonds and treasury bills, the market will start to see the negative impact on the equities.
- “Since there has not been either treasury bill auction or bond auctions, the system remained liquid. CBN just did a treasury bill auction today and the bond auction is to be done on Monday. Assuming they have done the auctions earlier before the recent hike in interest rate, the combination of that would have reduced the system liquidity and that would have made us see the negative impact of the MPR immediately.
- The impact could also be blunted by the release of corporate earnings results by companies to the market,” he said.
The Managing Director, of Crane Securities Limited, Mr Mike Eze also speaking with Nairametrics said the reason the impact is not felt immediately was that there was still liquidity in the market coupled with the expectation of year-end dividends, particularly the banks.
- “Expectation of high dividend for the year-end is what is delaying investors from migrating to fixed income space. There is no need to move now, it is better you wait and take your returns before moving. funds normally move from an area of low return to an area of a high return on investment. The expectation is high and after the dividend payment they will move to fixed income which is also expected to be attractive,” Eze said.
