The Nigerian equities market, defied the new interest rate as equities investors gained N17.1 billion in market capitalisation which closed at N29.9 trillion while the benchmark All Share Index rose by 10 basis points 0.1 per cent to 54,936.11 points.
The Central Bank of Nigeria (CBN) on Tuesday hiked the interest rate to 18 per cent from 17.5 per cent, a development which equities investment analysts have said has no transmission effect on activities at the Nigerian Exchange because the apex bank, according to them, is constrained from issuing fixed income instrument to give investors ample room to buy.
In most cases, a significant hike in an interest rate at 18 per cent is expected to trigger a migration of investments from the equities market to fixed income market as investors hunt for attractive higher yields in returns on investments.
But the financial market experts said that the expectation of a repricing of assets and portfolios is not going to take effect because the CBN cannot issue instruments that would give effect to rate, and therefore yield would continue to fall in medium and long-term instruments.
“The capacity of CBN to increase the supply of instruments and government securities to be able to absorb huge liquidity in the market is constrained because it comes at a huge cost, and they don’t want further burden in addition to the huge loan to the federal government through “ways and means.”
“And because investors are aware of the constrained position of the apex bank, they are not in a hurry to migrate to fixed income market because the yield will decline sooner than later,” the Chief Executive Officer, Wyoming Capital, and Partners, Tajudeen Olayinka, explained.
The Chief Executive of Highcap Securities, also a dealing member of the Nigerian Exchange, David Adonri, noted that yield in the fixed income market has been trending lower despite a 17.5 per cent hike in interest rate leaving a significant gap between the inflation rate and interest rate.
“As a result of this yield gap, investors are not in a hurry to migrate to fixed-income instruments because equities appear to have outperformed in returns on investments when you consider capital appreciation and dividends paid out by some of the income stocks.”
Meanwhile, activities at the Nigerian Exchange suggested that the latest rate hike had no trickle-down effect on the market as volume traded rose 5 per cent to 134.1 million though the value of trades fell 16.1 per cent to N1.3 billion.