November 18, 2019

Stock market rallies on the back of CBN’s new policy

Millennials and the future of the Nigerian Stock Exchange

Nigerian Stock Exchange

By Nkiruka Nnorom

INVESTORS are now raising their stakes in the equities market following the directive to the deposit money banks by the Central Bank of Nigeria (CBN) to exclude local corporates and individuals from participating in the Open Market Operation (OMO) auctions.

Arbitrage: CBN directs banks to reverse loan funded TB transactions(Opens in a new browser tab)

Consequently, this resulted in two percent increase in the major gauges of the stock market, the All Share Index, ASI, and the market capitalization.

ASI rose to  26,851.68 points, closing in the green on three of four trading sessions last week, the best week so far in the past six months.

Similarly, the market capitalisation rose by N261 billion to N13.071 trillion. This also represents two percent increase.

Though investment analysts have attributed the upward movement to the policy action, but they quickly cautioned that the development might only be short lived.

“The performance last week is a reaction to a limited outlet for investments given recent policy directives limiting domestic participation in the market.  As the effects of the CBN’s recent policies in the fixed income space continue to reverberate across the capital markets, investors flocked to the equities market in search of yield and drove the domestic bourse to its largest weekly gain since the week of the 23rd August 2019,” said analysts at Cordros Capital.

According to them, the market may continue to benefit over the short-term, especially in the face of lower yields in the fixed income market.

Corroborating, Lilian Olubi,  Chief Executive Officer, EFG Hermes Nigeria, opined that the directive may  likely continue to have a positive impact on the equities market, saying that corporate organisations like pension managers would need to divert more funds into equities market investments.

How regulators are repositioning mutual funds to spur investors’ participation(Opens in a new browser tab)

“We intend to see more bite into the equities market, henceforth, as a result of this,” she said.

On sectors, the banking and industrial goods sector rose 6.8 percent and 3.2 percent respectively, while the consumer goods sector appreciated by 2.6 percent. Conversely, the oil and gas and insurance sector declined by 1.8 percent and 0.6 percent respectively.