CRR increase, tapering dampen market mood – Report

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Analysts at Meristem Securities Limited have said the recent hike in the Cash Reserve Requirement on public sector funds by the Central Bank of Nigeria as well as quantitative easing-tapering by the United States Federal Reserve are creating uncertainty for investors.

Experts had explained that with a 47.17 per cent return by equities in 2013, the outlook for 2014 was largely positive.

However, in their latest ‘Investment Guide,’ analysts at Meristem Securities said the positive momentum, “though calm, was only sustained for a few trading days into the year (advancing 0.07 per cent, 0.73 per cent and 0.40 per cent respectively in the first three weeks of the year).”

The analysts linked the change in trend to the CRR increase by the CBN and a decision by the Fed.

After rising in the first three weeks of the year, they said, “The (NSE) index, however, took a down swing following the pronouncement by the CBN to raise the CRR on public sector deposits from 50 per cent to 75 per cent (market dipped -3.21 per cent in the following week and January returns plunged to -0.34 per cent).”

They explained that while investors were still reacting to the CRR hike, events in the global economy further depressed the market as Fed announced its decision to go ahead with QE-tapering as earlier planned.

“The sell offs witnessed in other emerging markets further extended the level of uncertainties in our market,” the analysts added.

According to the report, Nigerian equities had benefitted from an earlier decision by the US Fed to commence QE3 ($85bn assets purchase) in September 2012, having lowered interest rates earlier.

This, they said, was because the move resulted in a large flow of funds into emerging markets in search of attractive returns.

This trend continued into the first half of 2013 as transaction by foreign investors on the NSE improved from 36.89 per cent in January, 2013 to 51.13 per cent in June, 2013, the report observed.

However, in mid-June 2013, the US Fed hinted about tapering its asset purchase stimulus and since then, there has been net outflow of foreign funds from the equities market.

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