Fears of Global Financial Contagion Forcing Investors to Move Away from the Equities Market – CBN

The Central Bank of Nigeria (CBN) has stated that the renewed fears of a global financial contagion are forcing investors to move away from the equities market to safer assets such as gold, while others seek higher returns in treasury securities with improved yields.

This was highlighted in a recent publication on CBN Communique No 147 of the Monetary Policy Committee Meeting held on Monday 20th and Tuesday 21st March 2023 and personal statements of Members.

With several advanced economy central banks progressing with monetary policy normalization however, CBN posited that the global financial conditions will likely remain tight, thus reinforcing the reassignment of financial portfolios to reflect the risk aversion of investors.

On global economic development, the Monetary Policy Committee noted the risk of a global financial contagion from the recent bank failures in the United States and Switzerland whilst also pointing to the war between Russia and Ukraine as the cause of the critical strains to the commodities and energy markets as supply chain bottlenecks remain. In addition, it says the deteriorating relations between the US, China, Russia and some major oil producers in the Middle East, continue to contribute to increased volatility in the oil market.

In Emerging Markets and Developing Economies, the unfolding tight external financing conditions and shock spillovers from the advanced economies threatened to further dampen the recovery of output growth.

Amongst key Advanced Economy central banks, targeted at moderating global demand pressure, global inflation shows signs of deceleration, monetary policy normalization is progressing unabated, hence, price development across several economies is thus expected to remain high throughout 2023, but to decelerate gradually in 2024.

The CBN also highlights key factors to keep inflation above the long-run target of several central banks to include persisting disruption to energy markets associated with continued war between Russia and Ukraine; high commodity prices; and general disruptions to the global supply chain associated with uncertainties around the COVID-19 pandemic in China and the ongoing tensions between the US and China over Taiwan’s sovereignty.

Across several emerging market and developing economies, it added that inflationary pressures have remained high due largely to rising energy prices, high prices of grains and exchange rate pressures associated with capital flows to high yield US dollar-denominated assets.