Bargain Hunters Return, Await Positive News, Ahead July Inflation Data, Others

Market Update for August 10

The seesaw movement continued on Nigerian Exchange on Thursday, as the bull resurfaced to reverse the previous session’s negative outing on improved buying sentiment across the major sectors of the market on a less than average traded volume and positive market breadth that signal a return of strength. It also, formed a bottom reversal pattern that needs confirmation as trading opens on Friday. The benchmark NGX All-Share index closed higher on buying interest in highly priced stocks, blue chip companies and others that pushed the market up for the session.
The increased volume and bottom reversal pattern of the market signals renewed buying sentiment as more corporate earnings and other positive news are expected to hit the market, as volatility persists. These reflect the impact of ongoing government economic reforms, as well as the Central Bank of Nigeria exchange rate unification, and mixed performance over corporate earnings released so far among others. At this point the market is looking forward to favorable and positive news now triggering yet another round of buying interest. Also noteworthy is the rates of the Treasury Bills’ primary market offers that fell to 5%, 5.9% and 9.8% respectively for the 91-day, 182-day and 364-day instruments. Portfolio rebalancing and sector rotation equally continued on the strength of company earnings’ power.
There is the ongoing volatility as a result of the changing economic fundamentals, and government reforms that are driving the reset in financial market and trading environment. It should be taken against the backdrop of August being a very dicey month when eyes should be kept on the chart, trend, sentiment and volume at all time, using multiple time frame analysis to catch short, medium and long term buy breakouts or sell breakdowns. All these are already impacting prices of equities in the face of the recent rate hike that made fixed income instruments attractive for risk averse investors, just as institutional investors continue digesting these numbers in the midst of rising inflation and opportunities within the equity space to hedge against the surging inflation.
Also, the Price/Earnings ratios of the NGX and most individual companies reveal their relatively undervalued state and higher upside potentials to attract liquidity and positive sentiment. The economic managers are expected to give clear direction of government policies and implementation. This is why there is need for investors to navigate the market now that many equity prices look relatively cheap on the strength of some impressive earnings. The market cycle of top and bottom in the face of technical pattern of over bought and sold market or individual stocks signal that a reversal is underway, as bargain hunters take advantage of the pullbacks to reposition their portfolios.
The market rebounded, breaking out the 65,000 mark and trade slightly above the ‘T line’ and 50-day moving average, attracting bargain hunters as buying interests in medium and low cap stocks increased amidst digesting of scorecards of many companies on the exchange. It is therefore time to use technical tools, if you have been ignoring charts and fighting the trends, it is your chance to step up your game.
At the current phase, the market offers bargain opportunities, following which market players should target leaders in the various sectors with strong fundamentals, and positive technicals as the market reversal is underway, depending on first tier banks interim dividend payout to give insight of what will be expected at their final in 2023 financial year. it is pertinent to stress the fact that profit taking is part of market dynamics, which can occur at any time. This is despite the changing market structure as a result of the gradual return of foreign portfolio investors, even as we look forward to a mixed outing and intermittent profit taking, since environmental factors that pushed the market to this level remain unchanged, as market wait for favorable news and statements from the minsters.
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Oil price oscillation continued, as it pulled back to trade at $86.08 per barrel in the midst of expected higher shale output, Saudi Arabia to increase output in September in the face of weak demand, as china’s oil imports fall. The Russia-Ukraine war remains a major concern, the prevailing high interest rate regime and slowing inflation. Also, supply tightened due to the Russia-Ukraine conflict that entered the second year. This up and down movement in oil price, has continued to drive volatility across markets.
Thursday’s trading started slightly on the upside and oscillated for the rest of the session to rebound on position taking across the major sectors. This situation pushed the Index to an intraday high of 65,205.35 basis points from its lows of 64,154.19 bps before closing sharply above it opening figure at 65,204.82bps.
Market technicals were positive and strong with a higher volume traded when compared to the previous session in the midst of breadth favoring the bulls on a buying pressure as revealed by Investdata’s Sentiments Report showing 100% buy position and 0% sell volume. The total transaction volume index stood at 0.40 points, just as the impetus behind the day’s performance was relatively strong, with Money Flow Index reading 55.72pts, from the previous day’s 58.26pts, indicating that funds left the market, despite closing higher.
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Index and Market Caps
At the end of Thursday trading, the composite index NGXASI, gained 1,037.43 basis points, closing at 65,204.82bps, from its 64,167.39bps opening level, representing a 1.62% growth. Market capitalization also rose by N564.84bn to N35.48tr, from the previous day’s N34.92tr, which also represented a 1.62% value gain.

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The upturn was driven by demand for the shares of Dangote Cement, FBNH, MTNN, UBA and Cutix, among others. This impacted positively on Year-To-Date growth, which increased to 27.23%, while Market Capitalization YTD gain went up to N6.28tr, representing a 27.20% rise above its opening level for the year.

Bullish Sector Indices
Sectoral performance indexes were in green, except for the NGX Consumer goods that closed 0.55% lower, while the NGX Industrial goods led the advancers after gaining 4.80%, followed by Insurance and Banking, with 0.60% and 0.19% respectively. Just as NRX Oil/Gas closed flat.
Market breadth turned positive as gainers outpaced losers in the ratio of 22:17, while activities in volume and value were up after players exchanged 361.20m shares worth N5.74bn, driven by trades in FBNH, Fidelity Bank, Universal Insurance, Transcorp and UBA.
SCOA and Dangote Cement were the best performing stocks, gaining 9.4% and 9.3% respectively, closing at N1.17 and N349.90per share each, on market forces. On the flip side, CAP and Academy Press lost 10% and 9.4%, closing at N19.80 and N2.13per share, purely on the back of profit taking.

Market Outlook
We expect mixed sentiments on bargain hunting, in the midst of expected positive news, while investors digest corporate earnings ahead July inflation data and first-tier banks earnings reports. However, pullbacks are creating buying opportunities amidst economic reforms of the government, just as more policy pronouncements and economic managers hit the ground running, a situation expected to offer investment direction eventually.
Also, more Q2 earnings reports are expected to confirm the real state of the company performance and attract liquidity in the midst of markdown dates and the release of remaining audited accounts.
We note that discerning investors have continued to target fundamentally sound companies and defensive stocks to protect their portfolios. Any pullback at this point may add more strength to upside potentials. As such, investors should take advantage of price rally to take profit, while also looking at the trends and events across the globe and domestically.

Ambrose Omordion
CRO|Investdata Consulting Ltd
Tel: 08028164085, 08179547605