Kelechukwu Mgboji 
As the economy enters into the last quarter of the year 2024, economic indices monitored by New Telegraph indicate that the Central Bank of Nigeria’s monetary policy has been the major driver of activities in Nigeria’s financial markets.
While the equities segment of the market struggles to shake off the grave impact of CBN’s persistent rates hike, the money market is booming with yields that keep investors coming.
For the real (manufacturing sector), impact of CBN’s unprecedented interest rate spike is synonymous with death sentence. The economic numbers available from the financial markets suggest that the equity market might be headed for weaker returns in Q4 compared to the previous quarters, setting off a modest year-end performance for this year except the monetary authority (CBN) align with fiscal authorities’ policy decisions.
“For now, they are working at cross purposes. You cannot achieve growth of the real sector by pushing them away from access to cheap credit. That is what CBN is doing in the name of attacking inflationary pressure.
Invariably, the fiscal policy is working towards expansionary economy while CBN’s policy template is tight monetary policy. All this amounts to fighting fire with fire, and they will end up burning up everywhere,” an economic analyst told our correspondent.
The economist who did not want his name on print insisted that the Yemi Cordoso led CBN is must choose between expansionary policy to align with that of the federal government or continue with its monetary tightening policy that has failed to tame inflation.
“Herein lies the dilemma of Nigeria’s equity market,” the senior stockbroker concluded.
Market performance
The Nigerian equity market saw a robust 39.84 per cent growth in Q1 2024, with the All Share Index rising from 74,773.77 to 104,562.06 points. In response to hikes in policy interest rates, yields in the bond and Treasury Bill markets rose significantly.
The yield on a 1-Year NT-Bill peaked at 26.5 per cent in Q3 2024 before subsiding due to increased demand. Similarly, the yield on a 10-Year FGN Bond reached 20.7 per cent.
As yields increased in the fixed-income market, the equity market lost momentum, with the NGX All-Share Index (ASI) recording a 1.8 per cent loss in Q3 2024, compounding the 4.3 per cent loss from Q2 2024.
However, the second and third quarters witnessed modest corrections, with declines of -4.31 per cent in Q2 and -1.50 per cent in Q3. This was driven by economic challenges, including high inflation, a depreciating exchange rate, and the introduction of a windfall that affected sectoral performances, particularly with in the banking sector.
Year to date, Nigeria’s exchange rate has depreciated by 69.9 per cent, moving from N907.11/US$ at the beginning of the year to N1541.52/US$. In the current quarter, the Naira has further depreciated by over 2.5 per cent, dropping from N1505.30/US$ to over N1590.52/ US$.
The depreciation has been driven by rising demand pressures, despite an increase in foreign reserves. As these major headwinds buffeted the financial market, investor appetite for money market funds surged, driven by attractive rates on money market instruments.
Investors became more cautious with equities investments, steadily migrating to fixed income market where interest rate and yield on asset classes across tenors keep rising and therefore irresistibly inviting.
“Despite the smaller decline in Q3, investors are cautiously optimistic. They expect a modest bullish turnaround in Q4, encouraged by improving sentiment and probable policy adjustments,” analysts at Proshare
Looking ahead to the next quarter, we expect the equity market to deliver a relatively positive performance
wrote in emailed note on Friday. Continuing, the report stated “Looking ahead to Q4 2024, analysts expect continued monetary tightening to sustain investor interest in money market instruments, equities, and ETFs.
Meanwhile, caution will likely remain for long-term funds due to the risks in the broader economic environment,” The FMDQ Debt Market recorded an 88.63% increase year-on-year to N74.96trillion market size, indicating a strong presence in debt instruments, including bonds, treasury bills, and other fixed-income securities.
On the contrary the NGX’s market capitalization declined to N56.64trillion, representing the total market value of all publicly traded companies on the NGX.
Interest rate
In response to the elevated interest rate environment, the bullish momentum in the equity market has dissipated, largely due to low appetite for the industrial goods stocks driven by profit-taking behaviours in DANGCEM and BUACEMENT, with proceeds flowing into the fixed-income market.
Commenting on the shift of sentiments, analysts at FSDH wrote: “The government’s persistent hawkish stance will keep yields elevated over the next few quarters, discouraging bullish sentiment in equities.
“In addition to structural issues in the banking sector and the 50-70 per cent Forex Windfall Tax, the elevated interest rate environment poses a significant challenge to the uptake of public offerings and rights issues by commercial banks as they attempt to ramp up recapitalisation efforts,” the analysts stated in their review of the Q3 performance and outlook for the last quarter of the year.
Last line
“Looking ahead to the next quarter, we expect the equity market to deliver a relatively positive performance as the year winds down, with investors likely to take positions in dividend-paying stocks in anticipation of strong financial results,” the analysts said.
