•Industrial stocks promising
By Kelechi Mgboji
Assistant Business Editor
Stocks recovered last week from a nine-month low to gain 0.24 per cent to 27, 662 points on the back of interest rate cut by the Central Bank of Nigeria (CBN).
The Nigerian Stock Exchange All Share Index, which has shed 20.4 per cent year-to-date, had depreciated by 3.3 per cent on the last seven days before the rate cut on Tuesday, November 24.
With the cut, the first reduction in the cost of borrowing in more than six years, analysts said hope rises for equities market rebound.
“On the back of the reduction in policy rates … investors are reconsidering investment in the equities market to earn higher return,” Afrinvest Head of Research, Ayodeji Ebo, told Reuters.
He expected stocks in the industrial sector, such as Dangote Cement and Lafarge Africa, to gain from the liquidity surge as infrastructure projects boom.
But Ebo said the rate cut may hurt bank earnings as consumer firms reel from dollar shortages.
At the end of its monetary policy committee (MPC) bimonthly meeting in Abuja on Monday, November 23 and Tuesday, November 24 the CBN announced cuts in benchmark interest rate to 11 per cent from 13 per cent, and credit reserve ratio (CRR) from 25 per cent to 20 per cent.
CBN Governor, Godwin Emefiele, said this is to stimulate lending.
However, the policy shift which impacted positively on the capital market, left the fixed income segment of the financial market in the red as bond yields fell sharply on Wednesday, November 25.
It also weakened the naira on the unofficial market, falling 0.8 per cent to N242 to the dollar in exchange, although the official rate remains pegged at N197.
“We anticipate further moderation in bond yields,” Ayodeji said.
According to traders, yield on the most liquid five-year bond fell 264 basis points to a five-year low of 7 per cent while the benchmark 20-year bond closed 150 basis points down at 10.8 per cent on November 25.
Bond yields had traded above 11 per cent across maturities prior to rate slash, with the 2034 bond trading at 12.30 per cent.
The CBN has been injecting cash into the banking system since October to help the economy.
Banking system credit stood at N290 billion as of November 25, keeping overnight rates as low as 0.5 per cent.
Samir Gadio, head of Africa strategy at Standard Chartered Bank, said bond holders could be exposed to future losses if the interest rate easing cycle suddenly ends with inflation currently trading 9.3 per cent below the yields.