Capital market to bounce back in October- Analysts

Following the reduction of Cash Reserve Requirements (CRR) reduction by the Monetary Policy Committee of the Central Bank of Nigeria from 31 per cent to 25 per cent, capital market analysts said the nation’s stock market will emerge positive in October.

According to them, the reduction in CRR would reduce pressure on Deposit Money Banks (DBMs) liquidity since President Muhammadu Buhari implementation of Treasury Single Account (TSA) in September.

They also noted that possible appointment of cabinets by Buhari and nine-month corporate earnings is expected to impact positively on the capital market.

The Managing Director of Enterprise Stockbrokers Plc, Mr. Rotimi Fakayejo, noted that liquidity in the system has not changed but the ministers expected to be appointed in October and possible impressive results from banks earnings would resurgence investors’ confidence.

He said, “If the CRR was not reduced, the negative effect could have impacted on listed banks’ share prices. We expect by October, the government will start identifying its economy policy and the capital market will benefit.”

While a few analysts had expected a rate hike as inflation keep increasing, others expected the committee to maintain the status quo for the rate to be unchanged except for the CRR due to the implementation of TSA.

 Analysts at Meristem Securities, a Lagos based stockbroking firm, stated that expectation based on the latest MPC decision, will bring about a slight change in system liquidity considering the reduction of the CRR by six per cent while expecting banks to devise innovative means to stay afloat.

 They also expect a continued hike in Inflation in line with growing exchange rate pressure.

 WSTC Financial Services expects the liquidity-easing effect of the reduction in CRR to result in a moderate reduction in yields in the fixed income market in the short term and remain cautious on equities in the mid-term amid expectations of fragile corporate earnings, compelling risk-adjusted returns in fixed income, perceptions of inefficiency in foreign exchange pricing, and weak investor confidence

The MPC had also retain the MPR at 13 per cent with the Liquidity Ratio at 30 per cent.

he committee in its considerations noted categorically that the overall macroeconomic environment remained fragile as the economy continue to slow and in the face of prevailing circumstances, it acknowledged that synergy between monetary and fiscal policies is an option to sustainable growth.

The stock market year till date performance as at September 23, 2015 stood at negative 11.87 per cent as foreign investors are trading on uncertainty.