SAT 29 MAY, 2021-theGBJournal- In line with our expectation, the total value of transactions traded at the NGX declined by 30.0% m/m to NGN159.93 billion in April (March: NGN228.50 billion) – the lowest since August 2020 (NGN94.45 billion). The preceding was driven by declines across the domestic (-29.8% m/m to NGN131.91 billion) and foreign (-31.1% m/m to NGN28.02 billion) participation at the local bourse.
We highlight that the total value of foreign involvement in April is the lowest in four years (April 2017: NGN22.45 billion), which we believe was induced by rising bond yields in the advanced economies amidst lingering foreign exchange illiquidity in the country.
The weak domestic participation was driven by a 66.4% m/m decline in retail investor’s participation which masked the 20.3% m/m increase in institutional investors’ participation.
We maintain our expectation of weak domestic and foreign investors’ participation on the local bourse in the near term due to (1) sustained rise in yields in the fixed income space and (2) lingering liquidity constraints in the FX market.
Meanwhile, confronted with the twin problems of tepid economic recovery and stubbornly high Inflation, the Monetary Policy Committee (MPC) of the CBN voted unanimously to maintain the MPR at 11.5% alongside other key monetary policy levers. The preceding indicates that the hawks (from March’s policy meeting) have now retraced to a more conservative stance.
The unimpressive GDP growth of 0.51% in Q1-21 may have prompted the hawks to align with the broader view of the Committee that an accommodative monetary stance is still required to restore the productive capacity of the economy. Although the meeting’s outcome was broadly in line with market expectations, we note that the neutral tone struck by the CBN Governor suggests the MPC may push back the widely anticipated hike in the MPR.
The Committee reiterated its resolve to continue adopting unorthodox measures to manage system liquidity to nullify the indirect channels through which a high level of money supply amplifies inflationary and exchange rate pressures. As things stand, we now expect a hike in the policy rate to come in either of the last two meetings for the year.-With Cordros Research