Market Roundup for May 2022

The month of May once again defied the manta among traders “sell in May and come in October” for the third time over the past five years on the Nigerian Exchange, as it closed higher. This was despite pulling back from last week’s rally as the market failed to carry over the gains, owing to two trading sessions of profit taking on Monday and Tuesday. The index, thereby, extended the previous month’s gain, as the benchmark NGX All-Share index rallied to a 15-year high on a ‘buy’ sentiment, amidst selloffs and price corrections.

There were panic selloffs among traders after the Central Bank of Nigeria hiked the benchmark Monetary Policy Rate to 13% from 11.5%, despite the better-than-expected Q1 corporate earnings in the midst of weak economic data, rising inflation and insecurity across the nation, which has forced farmers to abandon their farmlands.

The high traded volume and positive sentiment during the month reflected the buying interest and activities of institutional investors as they sought to hedge against inflation before the jump in fixed income rates and yields, which is currently diverting funds from the equity market.

Given the outcome of the Monetary Policy Committee meeting in May, the prevailing economic data and corporate earnings now looking up, we envisage a reversal in trend with March year-end accounts already hitting the market with mixed numbers. There are also half-year interim dividend and earnings season underway, besides the fact that crude oil is trading around $116 per barrel, after touching high of $123.8 in the last two months.

Investdata Research projects that the Nigerian equity market’s benchmark ASI would close the year 2022 on a positive note, despite the uncertainties related to the ongoing electioneering activities ahead of the 2023 polls, and the ongoing war in Ukraine that is threating global economy as commodity prices are skyrocketing. The rallying oil prices now hovering above $100pb should support the nation economic recovery, if the government ensures unfettered production activities. The positive performance in the month is an opportunity for discerning investors and traders to cash out and reposition in the new month after the pullbacks ahead of the half-year earnings season in July.

Since investment or trade is against expectations, let your investment objectives guild your entry and exit decisions, just, as the market continues its mixed trend and performance into the last month of Q2 and ahead of Q2 numbers. We are still seeing big trends setting up over the next few weeks and months after the ongoing party primary elections. The way certain stocks and sectors are reacting right now may lead many investors to believe that a breakdown trend is setting up, which could be the case but reversal is underway after correction.

The month of June has recorded mixed trends over the past five years, closing southward in three years and north in the other two.

But, behind the scenes, sectors are starting to show signs of a broader recovery patterns that may surprise those who are not paying enough attention. Do not allow profit-taking and market oscillation to push you out of good position but take advantage of any pullback.

The candlestick pattern that represents the month’s trading activities shows that buyers are still in control, while technically forming a bullish candle that supports uptrend and reversal depending on market forces in the new month of June. This is therefore signaling the beginning of a short bear-run in the new month, depending on sentiment in the market.

The NGX recorded 20 trading sessions during the month under review with 11 trading days of up market, and nine of down market during the period, closing on a positive note with the composite NGXASI oscillating. The benchmark NGXASI gained 3,351.34 basis points during the month to close at 52,990.28bps after breaking out the strong support levels of 50,000bps and 54,085.30bps, from its 49,638.94bp opening level, representing 6.75% growth in the period.

The buying and selling volume of total transactions for the month were 86% and 14% respectively, extending the previous months’ up market, as volume index for the period stood at 1.17, while market capitalisation recorded N1.81tr gain, closing at N28.57tr, from an opening value of N26.76tr, representing 6.76% appreciation in value. The market had a buying sentiments for high cap stocks and others on Q1 scorecards and economic data released, as investors and analysts continue to interpret the numbers. The month’s traded volume was up by 32.84% at 8.05bn shares, from 6.06bn units in the previous month.

The NGX index’s year-to-date gain position stood at 24.57%, just as market capitalisation adjusted down to N6.02tr representing 28.49% gain YTD from the opening value.

Market breathe in the month of May was slightly positive as gainers outpaced losers in the ratio of 69:62 to extend the bull run in the month of April, reflecting the buy interest in high cap stocks and profit booking in medium and low priced equities. Also there was portfolio repositioning among players, on the strength of Q1 earnings reports which were impressive and higher than market expectations, especially from sectors as Agro-Business, Industrial goods, Telecommunication, Energy, Consumer goods few from Banking and Insurance. This is an indication that the current divergence in company earnings and share prices will not last.

Performance indexes across the sectors were mixed as shown in the chart below, NGX Main Board, NGX Oil, Consumer, Industrial and Premium stocks pushed the market up in the period under review, after gaining 12.09%, 5.29%, 5.44%, and 3.99% respectively to impact positively on the benchmark NGX All Share Index.

These was attributed to price appreciation and adjustment for dividend during the period, selloffs in two sectors as profit taking some of the blue chip stocks. Despite the impressive numbers emanating from different companies and sectors to inspired discerning investors to rethink and position early ahead of year end, amidst the relatively low Price-To-Earnings attraction in the market. Other indexes that closed red during the month were: NGX Insurance and Banking.

Best Performing Stocks for May

Low and medium priced stocks, especially manufacturing companies topped the month’s best performers, as McNichols Consolidated Plc, Cadbury, and Champion Breweries continue to enjoy buying interests and impressive earnings, while the market still expects the Q4 2022 results from others. The stocks closed the month higher, after gaining 182.88%, 72.68% and 56.75% on their opening prices for the month respectively. It was followed by International Breweries, which chalked 54.90%; while Okomu Oil grabbed 46.26%; and Fidson Healthcare, 34.92%. See the table below:

Worst Performing Stocks for May

The top losers in the month were insurance stocks and other medium companies, led by GSPEC Plc, which shed 26.72%, on the back of market forces and sentiment, while Ikeja Hotel was down by 17.86%. Investors seems not to react to the company’s improved earnings release to the market. Julius Berger declined by 13.65% on price adjustment for dividend; Honeywell Flourmill, 13.51%; and FTN Cocoa, 13.51% on the back of market forces.

Technical View on Monthly Time Frame

The NGX index action rallied before pulling back, technically the market remain strong for month of May, despite entering a decline phase, and at the same time resisting decline as revealed candlestick that supports reversal and continuation depending on market forces in the new month. The expected buying interest and positive sentiment for portfolio adjustment and repositioning for Q2 numbers are likely to continue. The outflow of funds from equity assets as revealed by the money flow index supported the seeming downtrend, until smart money reposition their portfolios.

Where To Invest And Expectations For the Rest of Q2

The global economy and market remain mixed and dicey as Ukraine war and other factors are  driving gloomy economic outlook across the  climates continue, with the World Bank recently downgrading its economic growth outlook based on the ongoing Russia and Ukraine conflict  that had disruption supply chain .

Back home, the seeming economic recovery and mixed indicators are likely to continue in the new month as we expect more economic data and developments to confirm the real state of the nation’s economy as implementation of the 2022 national budget continues. This will be helped by the CBN’s continued intervention in critical sectors to boost productivity needed to create employment and support recovery in the face rate hike. Reasons for this are not far-fetched, given the impact of high cost of energy and insecurity in the system that is fueling inflation.

In June, we expect the release of May Consumer Price Index (CPI) by the National Bureau of Statistics (NBS) that would likely show that inflation is rising further; just as the CBN’s Purchasing Managers Index (PMI) for May is equally expected in this June. The nation’s GDP is still on a weak recovery mode to reflect the true state of the economy.

As corporate earnings reporting season has been extended to May and June for the few March year-end accounts, the fundamentals of these earnings and dividend declaration will support the ongoing positive outlook in market. Also, we note that many high cap stocks have this month as their qualification and mark down dates, a situation that will keep the market oscillating, while all eyes are on party primary elections.

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 to position in some sectors for medium and short-term gains, especially the banking, telecom, Industrial, agribusiness and consumer goods after a carefully study of recent numbers being made available to the market.

What to expect in June and July

• Release of more quarterly and full year earnings. Earnings from blue-chip companies may strengthen market fundamentals in June.
• Continuation of oscillating trend of equity prices as a result of repositioning of portfolio along the line of positive numbers and profit taking. Also the second half of this year will likely be dominated by positive sentiment.
• Market outlook for June is mixed but remain dicey, after the index defied the “sell in May and come back in October,” which may not be applicable in the current trend of our market that has changed in the last five years. In the Nigerian market, the month of June has always been up and down. But with the impressive Q1 numbers so far; the oil price oscillating above $110 per barrel in the global market and the CBN intervening in the FX market to create stability.
• The sustained low valuation in the market may trigger high demand for stocks as players realign their portfolios. However, there is need to invest wisely, using bids, offers and volume when taking decisions as a trader.
• Managing risks and protecting capital at this point is very important, so you will determine when to buy or sell, by watching the stocks and the market, using technical analysis.  Look for investdata daily sentiment timing report and home study video packs
• Let numbers released by the companies guide your decision and time to stay in that position.
• Full-year earnings reports of March year-end companies will start hitting the market until June.

As the market phase is changing, it is time to combine fundamentals and technical tools to take decision by knowing the support and resistant 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.

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Ambrose Omordion
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