Amid the prevailing foreign exchange FX and other micro and macroeconomic whirlwinds in Nigeria’s landscape, investment experts at Bancorp Securities Limited, a leading investment research and consulting services provider, have predicted trading sessions in the Nigerian Exchange (NGX) would be dominated by bears.
The analysts, who made the forecast in the firm’s ‘Weekly Stock Recommendation – March 4 – March 08 2024’ report circulated to our correspondent on Monday, hinged their prediction on the local bourse’s trading trend on the latest policy measures by the Central Bank of Nigeria (CBN) which were aimed at curbing the surging inflation rate in the long run and other factors.
Specifically, on the outlook of the market this week the investment experts predicted: “In the current week, we anticipate the stock market to experience trading within specific ranges, driven by investor shifts towards fixed income market.
“However, this temporary bearish trend is expected to subside, as the equilibrium prices of higher yielding fixed income assets adjust upwards to meet demand. This adjustment justifies the purchase of stocks with strong fundamentals”, they added.
The Bancorp Securities’ researchers recalled that last week the CBN’s Monetary Policy Committee tightened policy rates and other benchmarks, in consonance with the recommendation of the International Monetary Fund (IMF).
According to them, the revised policy decisions from the meeting include the raising of the MPR by 400 basis points to 22.75%; upward review of the asymmetric corridor around the MPR to +100/-700 bps around the MPR, jerking up of the CRR to 45.00%, and retention of the Liquidity Ratio at 30.00%.
While noting that these revised benchmarks are aimed at curbing inflation in the long run, the experts noted that, however, there were various perspectives to it;
For instance on the upside effects, they pointed out that increasing interest rates could help in narrowing the gap between inflation and nominal rates, encouraging foreign portfolio investments and that declining real estate values will contribute to lower inflation rates, strengthening the exchange value of the Naira, boosting liquidity in fixed income securities, and that while equity markets decline, fixed income markets could expand – at least temporarily.
On the downsides, the analysts noted that fiscal and monetary policies appeared to be in disarray as the Federal Government continued to lean toward expansionary policies, while the apex bank continued to adopt a restrictive stance with the attendant implications for restrained consumer spending and increase in financing costs for businesses while sustainability of foreign portfolio investments inflow in the Nigerian context remained uncertain.
