Emmanuel Ochayi
Equity Market Surges Amid Interest Rate Hike
Nigeria’s equity market gained N120 billion last week, rising 0.21 percent despite a surprising interest rate hike by the Central Bank of Nigeria (CBN).
The surge in the market was largely driven by buy-side decisions in oil, gas, banking, and insurance stocks, which outweighed sell-side activity in the consumer goods and industrial sectors.
Join our WhatsApp ChannelCBN’s Interest Rate Decision and Market Reaction
The CBN’s Monetary Policy Committee (MPC) shocked many in the equity market by raising the Monetary Policy Rate (MPR) by 50 basis points, bringing it to 27.25 percent.
This marked the fifth consecutive rate hike in 2024, and the decision didn’t stop there. The Cash Reserve Ratio for commercial banks also increased by 500 basis points to 50 percent, while merchant banks saw a 200 basis points hike to 16 percent.
Many analysts expected a decline in the equity market following the rate hikes. “We anticipated a negative market reaction,” said Chuka Madu, a stock market analyst. “Higher rates usually drive investors toward fixed income, but the equity market showed resilience.”
Oil and Gas Lead Equity Market Gains
Despite intensified risk-off sentiments due to elevated interest rates in the fixed income market, the Nigerian Exchange Limited (NGX) saw three days of positive sessions, compared to two negative days.
Oil, gas, and banking stocks were among the top gainers in the equity market, while consumer goods and industrial stocks were mostly in the red.
READ ALSO: Nigeria’s Equity Market Records First Decline After CBN’s Rate Hike, Investors Lose N267bn
John Akpan, a trader on the NGX, noted that “investors are still eyeing opportunities in energy and banking sectors, as they believe these sectors have room for growth, even in a high-interest environment.”
The NGX All-Share Index (ASI) rose from the previous week’s close of 98,247.99 points to 98,458.68 points, while the market capitalization grew from N55.457 trillion to N56.577 trillion.
Performance of Equity Market Year-to-Date
As of September, the equity market’s performance has been strong, rising by 1.95 percent this month alone. The year-to-date return stands at 31.68 percent, indicating steady investor confidence in the local bourse despite economic challenges.
“The equity market’s performance shows that there is still a lot of optimism,” said Ngozi Uche, an investment strategist. “Even with the MPC’s interest rate decisions, the market has managed to stay in the green for most of the week.”
Market Outlook Amid Rising Interest Rates
Looking ahead, analysts expect the market to face some headwinds due to the rising interest rates, which could push more investors into the fixed-income market. However, sectors like oil, gas, and banking are likely to remain attractive, offering investors opportunities for gains.
“The market will remain volatile, but we believe some sectors will continue to thrive,” said Madu. “With the right investment strategies, there are still opportunities to be found in the market.”
In summary, Nigeria’s equity market remains strong despite the CBN’s interest rate hikes, with gains driven by oil, gas, and banking stocks. However, investors will need to be cautious as interest rates continue to rise, potentially impacting the equity market’s future performance.
