Markets await monetary policies as investors jostle for banks

Nigerian equities showed modest recovery last week as investors await the decisions of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN). The MPC starts its meeting today and it is expected to announce its decisions tomorrow.

The Nigerian stock market showed a modest recovery last week with average week-on-week gain of 0.15 per cent. The All Share Index (ASI), the composite value-based index that tracks prices of all quoted equities, trended upward by 0.15 per cent from its week’s opening index of 34,388.21 points to close at 34,439.40 points. Aggregate market value of all quoted equities rose by 0.16 per cent from N11.678 trillion to close the week at N11.697 trillion.

Market analysts said the outcome of the MPC meeting will influence portfolio direction of most investors. The MPC is expected to situate its decisions in the context of the recent pressure on exchange rate, declining external reserves, rising price level and slowing domestic economic growth.

Market pundits at SCM Capital (formerly Sterling Capital Markets Limited), GTI Securities and Afrinvest Securities among others said the MPC decisions would impact on the overall market performance going forward. Most analysts however said they expected the MPC to retain the current rates.

Analysts at Afrinvest Securities noted that while the financial system is being observed for full digestion of these recent policy pronouncements, the sustained pressure on the Naira, widening spread between the interbank and Bureau De Change (BDC) markets and low levels of external reserves will be top on the priority list of the MPC.

Afrinvest Securities said the MPC would most probably decide to maintain status quo on major policy rates while postponing the possible further devaluation of the Naira to a later meeting after installation of new administration.

According to analysts, the MPC will likely retain MPR at 13 per cent, public sector’s cash reserve ratio (CRR ) at 75 per cent, private sector’s CRR at 20 per cent, liquidity ratio at 30 per cent, net open position (NOP) at 0.5 per cent while maintaining status quo on exchange rate policy to allow the incoming administration settle before grappling with any major monetary policy issue.

“Since the last meeting in March, the economy has witnessed rising liquidity which has steadily impacted on the headline inflation rate, driven primarily by exchange rate-induced high prices of imported food and services. This has also created sustained pressure on the External Reserves owing to the depreciation of the Naira and weak oil prices at the international markets, while the gap between the inter-bank and parallel markets of the foreign exchange segments has also widen considerably,” noted analysts at SCM Capital.

According to analysts, despite the increased inflationary pressure and the re-emergence of pressure on the Naira, the MPC may likely weigh the option of retaining the Monetary Policy Rate and other variables at the current level.

“We are of the opinion also that it would be politically imprudent to make any significant adjustment that will compound the current market dynamics as the new administration takes over the reins of government by 29th of May, 2015,” SCM Capital noted.

Total turnover at the Nigerian Stock Exchange (NSE) last week stood at 1.63 billion shares worth N14.43 billion in 20,124 deals compared with a total of 1.58 billion shares valued at N20.15 billion traded in 23,279 deals in previous week. Transactions on three banking stocks accounted for nearly half of total transactions at the stock market last week as banking stocks continued to show better returns than other groups.

Transactions on United Bank for Africa Plc, Zenith International Bank Plc and FBN Holdings Plc totaled 754.043 million shares worth N6.223 billion in 3,699 deals, representing 46.37 per cent and 43.13 per cent of the total equity turnover volume and value respectively.

With the voluminous deals on banking stocks, the financial services sector dominated the market with 1.29 billion shares valued at N9.74 billion traded in 10,522 deals. This represented 79.29 per cent and 67.52 per cent of the total equity turnover volume and value respectively.

Further analysis showed that the services sector occupied a distant second on the activity chart a turnover of 76.63 million shares worth N97.93 million in 1,140 deals. The third place was occupied by the consumer goods sector with 69.61 million shares worth N2.08 billion in 3,552 deals.

Also, a total of 25,469 units of Exchange Traded Products (ETPs) valued at N3.339 million were traded in 53 deals compared with a total of 1.388 million units valued at N31.49 million traded in 47 deals in previous week. There was no trading in the bond sector during the week.

“Performance in subsequent sessions is expected to be calm as investors await the decision of the MPC on Tuesday,” analysts at Afrinvest Securities stated in a market preview.

Analysts said they expected the naira to remain relatively stable this week while anticipating that the current tight control in the currency market will be upheld.

Global analysis of stock market performance showed mixed trend last week. In the developed markets, the United Kingdom’s FTSE reversed gains recorded two weeks ago, declining by 0.9 per cent last week. The United States’ indices showed a generally bullish market. The NASDAQ rose by 0.7 per cent while Standard & Poors inched up by 0.3 per cent.

In Europe, German DAX contracted by 1.5 per cent while France CAC continued on the downtrend with a week-on-week drop of 1.2 per cent. However, the Japan NIKKEI 225 rebounded from recent losses and appreciated by 1.8 per cent while the Hong Kong Hang Seng also showed modest recovery with a gain of 0.9 per cent.

In the emerging markets of Brazil, Russia, India, China and South Africa, otherwise known as BRICS, the mood was largely bullish. The China Shanghai Composite rose by 2.4 per cent. The Russia RTS added 0.4 per cent. The India BSE Sens and the South Africa FTSE inched up by 0.8 per cent and 0.7 per cent respectively. However, Brazil’s IBOVESPA declined by 0.9 per cent.

Besides South Africa and Nigeria, Ghana’s GSE index rose by 2.5 per cent. However, Egypt’s EGX index and Kenya NSE 20 depreciated by 5.0 per cent and 1.8 per cent respectively.