Market Reacts To Monetary Policy Action

Earlier, the MPC voted to cut the monetary policy rate (Naira) in Nigeria by 100bps to 11.5% and adjusted the asymmetric corridor to +100/-700, while leaving other policy variables unchanged.

As expected, interest for equities improved yesterday as the All Share index advanced 50bps, closing at 25,783.02 points.

As such, the YTD return slightly improved to -3.9%.

Similarly, investors gained N67.0bn as the market capitalization closed at N13.5tn. In terms of market activity, the total volume traded appreciated by 58.1% to 414.2bn units while total value traded declined by 42.7% N6.3bn.

Reactions at the bond market also mirrored expectations, with the September auction oversubscribed by 1.5x as bids worth N360.2bn turned up compared to N145.0bn on offer. Despite the huge interest, the DMO sold N41.2bn less than the N145.0bn offered, while overselling by 167.8% on the shortest-dated maturity in a bid to drive rates lower. In all, stop rates declined across all tenors offered by 70-90bps to 6.00%, 8.52%, 8.90% and 8.94% respectively.

Naira

Naira Further Depreciates against the USD at the BDC, Parallel Markets Market reacts to monetary policy action.

Despite sustained uncertainties in the horizon, the recent decision by the MPC, alongside the expected sizable inflows into the financial system in Q4-2020, suggests that the low yield environment in the fixed income market will persist.

Clearly, this makes the investment case for equities increasingly compelling notwithstanding the rising country risk premium. As such, we expect to see a continuous flow of funds into the equities markets, especially from local investors. The banking names remain our preferred pick given the impressive H1- 2020 results as well as the increasingly cheap cost of deposits, which should keep the profit margin buoyant