Market Roundup for May 2024

Nigeria’s stock market again defiled the popular saying: “sell in May and return in October,” for the seventh time in one decade, with the benchmark Nigerian Exchange (NGX) All-Share Index closing higher, thereby halting the previous month’s downtrend. This was despite the mixed sentiment and inflow of audited and Q1 unaudited corporate scorecards, boosted by the high dividend payout from companies presenting their 2023 full-year accounts. The increase in the stock prices on the average is also despite the mixed corporate earnings and higher yields in the fixed income market in the face of runaway 33.69% inflation as of April.

Also, the relative stability in oil price supported the optimism for the month in the midst of renewed buying interests in the financial sector and others, despite the ongoing recapitalization to meet the new minimum capital requirement stipulated by the Central Bank of Nigerian (CBN) in what it says is part of efforts to position the nation’s banking industry to drive the $1tr economy envisioned by the Federal Government, besides boosting performance among the banks in terms of profitability and enhanced returns to stakeholders.

The market rally recorded in the period under review, was irrespective of the high volatility witnessed in the last few trading sessions as players reacted to the emerging macroeconomic data, corporate actions and earnings reports as investors realigned their portfolios to prep their returns on investment in JUne, the last month of the second quarter.

In the course of the month of May, an interesting pattern emerged as stocks that suffered various degrees of losses in April, began to recover in the midst of profit taking and selloffs, with the increased position taking ushering in the bull-run on the daily chart during the last week. This was due to portfolio realignment and rebalancing along sectors with potentials to sustain positive earnings due to their respective business models despite the ongoing domestic economic contraction and reset by government policies and reforms that are yet to yield the expected results even after one year of the Bola Tinubu administration.

The sector rotation and mixed sentiment may likely support the market in the new month of June, due to reduced volatility resulting from revaluation of equity assets ahead of Q2 corporate earnings. There was also the impact of high yields in the fixed income market already indicating that stocks are short-term overpriced, just as cost of debt servicing by government increased, following the high interest regime targetted at attracting foreign exchange inflows to the detriment of the domestic economy.

The recent hike in the CBN’s Monetary Policy Rate to 26,25% from 24.75% is expected to slow down economic activities and make funds expensive, making survival more difficult for operators in the private sector and businesses in the gloomy economic situation. Such as situation could hasten the onset of a recession in the face of weak macroeconomic indices and declining productivity as revealed by quarterly GDP in the last five quarters. As noted previously, Nigeria’s Q1 2024 GDP slowed down to 2.98% from 3.46% in Q4 2023, inflation in the month of April rose at 33.69%, amid the ensuing low industrial output. This increase in monetary policy rate will, nonetheless, support some sectors but be a minus for the equity market as money market yields and rates rally further, attracting domestic and foreign investors, while being a potent threat to companies as they struggle even more to stay afloat and operate profitably.

The mixed trend and sentiment were obvious during the 22 trading sessions of May, when the market was up for 11 trading sessions and down in the other half to short-live the correction that started in April, thereby supporting market year-to-date positive growth at 32.80%. During the month, the NGXASI recorded 1.09% rise on the back of several factors, some of which have been enumerated earlier. These include, specifically, the low price attraction of listed companies that paid dividend for 2023, the buying interest shown by smart money as the market continues to mirror economic realities by way of the weak economic fundamentals and data.

Meanwhile, the composite NGXASI for the month of May gained 1,044.93 basis points, closing at 99,300.56 from the 98.225.63bps it opened, representing a 1.09% growth during the period on a renewed accumulation move for dividend and capital gain that impacted on stock prices, as few stocks hits new 52-week high within the period under review.

The buying volume of total transactions for the month was 67%, while selling position was 33% to short live April down market as volume index for the period was 1.10. Market capitalisation for the month gained N620bn, closing higher at N56.17tr, from an opening value of N55.55tr, which also represented 1.12% appreciation in value, with the market having a mixed sentiment on dividend qualification and declaration.

The month’s traded volume inched up by 4.8% to 8.95bn shares from 8.54bn units in April. Market breadth for the month was weak and negative with increased number of decliners that outnumbered the advancers in the ratio of 58:39, while halting the bear transition witnessed in the previous month.

All the sectoral performance closed in green, save for the NGX Insurance as shown in the chart below. The NGX Pension and Banking indexes drove the market the most in the period under review as a reflection of the power of dividend paying stocks and the low-price attraction in banking stocks amid recapitalization moves. The Pension and banking indexes gained 3.85% and 2.97% respectively, which were more significant than the gain recorded by the benchmark NGX All Share Index; followed by the NGX Premium which rose 2.58% to reflect the rekindled buying interest in premium stocks. This was followed by the NGX Oil/Gas index, which moved 2.06% up, to reveal investors interest in undervalued stocks with strong upside potentials, especially Oando and Seplat. Other sectors that closed up during the month were: NGX Main Board, NGX 30 Index, NGX Consumer goods, while NGX Insurance and NGX Growth recorded lost for the period.

Source; NGX & Investdata Research

Best Performing Stocks For May

Tantalizer topped the gainers table, as 9 stocks closed with capital gains of over 20% for the period, on the strength of the news of fresh capital injection into the company. It closed the month 28.21% better than its opening price; followed by  agribusiness company Presco, which gained 27.85%; while construction giant Julius Berger chalked all of 24.91%. Flour Mills, a consumer goods company closed 24.59% up; just as GTCO notched a 22.32% gain; Oando, 22.28 %; and CAP 22.20%; among others.

Worst Performing Stocks for May

The worst performing stocks’ table was led by PZ which lost 42.11%, linked to profit taking and the proposed delisting by the majority shareholders who no await the regulatory nod from Nigeria’s Securities & Exchange Commission (SEC). Deap Capital lost 32.20% during the month under review; NEM price moved southward by 22.71% on the back of profit taking and market correction as investors await its full year results. The share price of Nascon shed 22.26%; International Breweries, 21.51%; and FTN Cocoa, 20.86% on the back of market forces and profit taking.

NSEASI MONTHLY TIME FRAME (Opening chart)

The NGX Index action rebounded after April, on buying interests as investors were attracted by the intra month lows attained by stocks in services sector and low valuation ahead of insurance sector full year 2023 and Q1 2024 financials that had supported the positive sentiment and momentum in the last week of May. There was a breakout of resistance level and psychological line of 99,000 on improved volume and buying sentiment from April bank recapitalization announcement by CBN induce low.

Where To Invest And Expectations For June, July

The outlook for the global economic and market remains mixed on the back of rising interest rate and rising geopolitical tensions across the world, made worse by sticky inflation and oscillating oil price in the international market, especially the political uncertainties and ongoing cold war between US and China. The expected easing of monetary policy in the new month in some domains will offer directions as tech the industry and companies are repositioning to take advantage of cheaper funds to activities and enhance profitability ratios.

Back home, the seeming government policies and economic reforms are yet to yield the expected results, as macroeconomic data revealed contracting economy in the past five quarterly GDP reports to reflect the impact of depreciating Naira, exchange market challenges and runaway inflation as a result of imported inflation and rising insecurity that had kept Nigeria farmers away from their farmlands. The hawkish move of the CBN to checkmate inflation has further fueled price of goods and services due to high cost of funds that are pushed to the final consumers. As CBN in five months had increased MPR by 750 bps to 26.25%, this will create scarcity of funds for private sector and increase cost of doing business and slow down economic activities as indicated by the recent weak GDP of 2.98%.

In June, we expect inflation figure for May to be released by the NBS and remain on the rise despite being harvesting season due high-cost transportation of goods and services, just as Purchasing Managers Index (PMI) is expected to remain low as the economic is still struggling to find direction.

The March year-end accounts are expected to strengthen market fundamentals, if the numbers beat expectations, but with the unfolding events and economic reality, most of the expected full year results will be mixed as Q2 earnings reports at the end of first half of the year will further confirm state of the companies and business environment. The likely correction in the market despite the recent rally in few stocks will create an entering point on the strength of the intrinsic value and sector rotation.

Traders and investors who understand the importance of combining fundaments and technical analysis in making investment decisions in the stock market should take this opportunity of pullback to position in some sectors for short-, medium- and long-term gains, especially in the banking sector after price correction, insurance, telecoms and undervalue consumer goods after carefully study of the recent price pattern and fundamental data available to the market. To save yourself the time start preparing for the upcoming Q3 master class to realign your portfolios at this season and beyond.

What to expect in June and July

• Release of March full-year earnings as June is the end of the statutory 90-day window for audited results and their Q1 on the extension of release date. This numbers from blue-chip companies may strengthen market fundamentals, if positive.
• The oscillating trend of equity prices as a result of repositioning of portfolio along the line of positive numbers and sectorial potentials.
• Market outlook for June remainsmixed and dicey as the month has closed in red four time in the last five years and was up just once.  But with the mixed sentiment and momentum as the market expect delay in economic recovery with FX market problem and others.
• Impressive insurance numbers, may trigger demand for stocks, but invest wisely, using chart pattern, earnings released date and sentiment reports, when taking decisions as a trader.
• Managing risk and protecting capital at this point is very important, so you will be able to determine when to buy or sell, by watching the stocks and the market, using technical analysis.
• Let numbers released by companies guide you decision and time to stay in that position.
• Being the last month of the second quarter of the year, activities are likely to look up as investors reposition for Q2 earnings season and second half of the year.
• Ahead of second quarter earnings season get the videos and PDF presentation of how to trade and invest with earnings season, where short trading strategies and how to identify quality companies to invest before the market look toward it have been discussed.

As the market phase is changing, it is time to combine fundamentals and technical tools to make decisions by knowing the support and resistance levels to reposition or exit any position. You must know the cycle it, or particular stocks therein are to successfully manage your trading and investment risk. For stocks that should be on your shopping list to buy in these seasonal changes as the year unfolds, sign up to INVESTDATA BUY AND SELL signal setup by calling 08028164085.

Ambrose Omordion
CRO|Investdata Consulting Ltd
info@investdataonline.com
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