How CBN’s Interest Rate Hike Affected Stock Market in Q3

By Tolulope Oke

The Nigerian stock market lost N1.48tn in the third quarter (Q3) of 2022 due to investors’ shifted investment to fixed market instruments.

At the end of September 2022, the market capitalization, which had started the year 2022 at N22.297 trillion but had since increased by N4.15 trillion, or 18.63 percent, had reached N26.4 trillion.

In the months of review, investors had seen twofold inflation, forex scarcity, uncertainty regarding the state of the world’s economy, and of course, an increase in the Monetary Policy Rate (MPR) to 15.5 percent.

The first half (H1) of 2022 saw the stock market sustain its upward trend from the previous year, with a return of 21.3% over outstanding corporate earnings by listed corporations.

From a quarterly perspective, the market mood was bullish in the two quarters with Q1 returning 10.3 per cent higher than 9.9 per cent in Q2.

In response to the Central Bank of Nigeria’s (CBN) increase in MPR, stock market investors aggressively moved to the fixed income market, which offers minimal investment risk and modest yields but is above the inflation rate.

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The All Share Index, which tracks the general market movement of all listed equities, shed 5.39 per cent to close Q3 on September 30, 2022 at 49,024.16 basis points – from 51,817.59 points at which it opened trading on July 1, 2022.

The total market value of listed companies’ outstanding shares fell by N1.484 trillion, closing lower at N26.451 trillion, compared to the opening value of N27.935 on July 1, 2022.

The stock market between June and September witnessed investors’ aggressive profit-taking amid the apex bank’s policy to tackle the steady increase in the inflation rate.

The stock market in September depreciated by N429bn or 1.6 per cent month-on-month to N26.451tn, from N26.88tn it opened for trading, while the NGX ASI was down by 1.63 per cent to 49,024.16 basis points from 49,836.51 basis points it opened for trading.