Bargain Hunting In Large Cap Stocks, Reactions To Interim Dividends Drive Mixed Sentiments

Market Update for the Week Ended August 26 and Outlook for August 29-Sept 3

Trading activities on the Nigerian Exchange rebounded last week after two consecutive weeks of negative outings in the midst of positive sentiments and weak momentum, with the composite NGX All-Share index making lower lows and lower highs to remain on a corrective wave, above 49,000 basis points’ marks on a low traded volume and mixed market breadth.

Market metrics at the close of the period turned green in the face of market decline and impressive corporate earnings, enhanced by the audited half-year financials presented on Tuesday by Zenith Bank and Stanbic IBTC Holdings, which beat analysts’ expectations. Directors of both companies proposed 30 kobo and N1.50 interim dividends respectively, triggering ‘buy’ interests in financial stocks, supporting the positive sentiments and NGX index.

The expansion of the economy by 3.54% in the 2022Q2, according to the latest data the National Bureau of Statistics indicates that Nigeria’s GDP grew by 13.83% from 3.11% in Q1 2022, sustaining an uptrend, despite the seeming decline from 5.01% in the same period of 2021. The sectors and industries thar supported this growth should, therefore, attract investors’ attention going forward, as they focus on leaders with outstanding performance.

However, price corrections in blue-chips and retracement in the prices of some high-priced stocks at the end of the week’s trading signals strength for rebound and higher upside potentials for value and growth stocks with stronger earnings that had suffered losses in this recent wave. At this point, traders should try new strategies or experiments and not be upset with the market mood, while tracking the new strategy to measure how well they are faring, because the factors against the market are many now. You can equally take a break to watch the market, because things are changing, with some of them beyond your control.

Meanwhile, market volatility continues to support technical traders in the midst of prevailing mixed sentiments, which was due to the corrective move and position taking by bargain hunters taking advantage of the prevailing relatively low prices of stocks and blue-chips relative to value. This is especially true of those that suffered losses in the midst of the strong numbers posted by these companies, thereby revealing their undervalued state, as seen in the high dividend yields pointing the possibility of a higher payout as a hedge against the soaring inflation.

While we note the effects of the increasing global volatility as a result of rising rates, inflation, geopolitical tension and slowing consumer spending, there are however, pockets of strength in some sectors amidst impressive earnings releases that offer insights into strong group stocks with value in the industries and companies in the various sectors. There is the possibility of sectors beating the next quarterly estimates and predictions, attaining their pre-pandemic performances as they deal with capacity in the midst of soaring costs and insecurity.

The NGX index’s action trades below the ‘T line’ and above 50-day moving average exponential on a weekly time frame, just as it tries to rebound on bargain hunting as sector rotation and portfolio rebalancing increased amidst expectation of more interim dividend paying bank results.  It is, therefore, time to use technical tools, if you have been ignoring the charts and fighting the trends, it is your chance to step up your game. At this current market mood, investors and traders should target leaders in the various sectors with strong fundamentals, and positive technicals as the market reversal is underway depending on the earnings power.

To navigate this current market situation profitably using fundamental and technical analysis to run, join investdata live sessions at noon every trading day “and also get investdata technical toolbox to play the current state of the market do suggest that discerning investors are gradually becoming greedy, while others are fearful, as seen in the recent range market. Despite the mixed sentiment witnessed, it is time to go shopping for undervalued stocks, sectors and the next insider playing opportunity.”

Oil prices sustained its rebound, trading at $100.60 per barrel in the international market, following fear of output cut by OPEC, in the midst of seasonal demand, US inventory report hit 35 year low, china weak economic data and fear of recession that linger on increasing geopolitical tension. These are happening amidst the low factory activities in China, Japan and others that now signal demand fear, made worse by the weakened GDP in the US that may push the world’s largest economy into a technical recession. Already, central banks across the globe have continued to hike rates in the fight against rising inflation, in the midst of a sluggish economic growth data from China and others. All these have continued to influence the monetary policy options of central banks as they move to checkmate the impacts of the Russia-Ukraine conflict on the global economy to avoid the looming economic recession.

Movement Of NGXASI

The NGX had a mixed trading week of two sessions of down markets and three days of up market amid buying interest in high priced stock like Airtel Africa, price adjustment for dividend and blue-chips continue to drive the oscillation and pullbacks that create opportunities for players to reposition their portfolios, amid interpretation and analyses of macroeconomic data and earnings released so far. Also, all eyes are on more half-year earnings reports with higher possibility of interim dividends, especially from the first-tier banking stocks like GTCO, UBA and Accesscorp.

Trading for the period, opened on a negative note, extending the loss of the previous session, by 0.07%. This trend was sustained on Tuesday when the index lost 1.64%, before rebounding at the midweek by 0.34%. This was strengthened on Thursday with price appreciation in Airtel as the market gained 2.01%, just as the index stayed up on Friday up by 0.04%. These brought the week’s total gain to 0.63%, compared to the previous week’s 0.59% loss.

In all these, the composite NGX All-Share Index rose by 311.15 basis points, closing at 49,682.15bps, compared to the week’s 49,370.67bps opening level for the week, touching an intra-week high of 49,728.46bps and a low of 48,511.58bps. Market capitalisation also chalked N168.02bn during the period, closing at N26.8tr, from the previous week’s N26.62tr, which also represented a 0.63% appreciation in value.

As usual, the Low and medium cap stocks dominated the week’s advancers table that attracted mixed sentiments amid volatility and position taking in high priced stocks and others. Also, notable is the fact that investors are taking advantage of the price correction wave.

Market breadth for the week was negative as losers outnumbered gainers in the ratio of 27:38 on buying sentiments as revealed by the investor sentiment report showing 96% ‘buy’ volume and 4% sell position. Money Flow Index was looking down at 31.29bps from the previous week’s 42.46 points, an indication that funds left the market on a weekly chart to reflect the high yield in fixed income instrument and others, just as daily time frame money flow index was up, revealing that funds enter the market on day chart.

The NGX index action on a weekly chart resisted a further decline with the formation of a bullish reversal pattern called hammer, while on daily time frame rebounded to trade above the T line on a buying sentiment and positive momentum, as the market remains strong in the midst of increased volatility and low liquidity. We note also that the index is trading below the ‘T’ line and 20-day moving average on a weekly time frame to signal the likelihood of reversal, depending on liquidity level and reaction to earnings report. The major strong resistance level of 49,874bps after testing 49,726.15bps on a low traded volume to remain above the 50-day moving average. The candlestick formation, at the end of the week, showed buyers are in control, as investors and analysts digest macrocosmic data, and other factors to reposition their portfolios for Q3 and beyond. The candlestick pattern indicates continuation of the trend, depending on market forces in the new week.

Bearish Sectoral Indices

Sectorial performance indexes for the week were in red, except for the NGX Insurance that closed 3.88% higher, while the NGX Industrial goods led the decliners, after losing 4.19%, followed by Energy, Consumer goods and Banking with 4.08%, 1.73% and 0.69% respectively.

Transactions in volume and value terms increased, with players trading 914.43m shares worth N15.26bn, compared to the previous week’s 823.01 units valued at N12.23bn, with volume driven by Financial Services, Services, Consumer goods and Conglomerates sectors. Specifically, the week’s volume was driven by trades in Mutual Benefits Assurance, FBNH, Accesscorp, Transcorp and Zenith Bank.

NEM Insurance and Mutual Benefits were the best-performing stocks for the week after gaining 30,89% and 20% respectively, and closing at N5.00 and N0.30 per share on market forces. On the flip side, NNFM and FTNCocoa lost 12.89% and 12.12% respectively, at N7.50 and N0.29 per share, purely on price adjustment and profit taking.

 Outlook for the week

We expect a mixed trend and sentiment to continue in the midst of low liquidity, as investors digest macroeconomic data and half-year corporate earnings released so far.  Also, players are repositioning their portfolio on the strength of earnings reports, as market players continue to analyze the interplay of Purchasing Managers’ Index and industrial output. Also, investors and traders continue reacting to the earnings power, as the revaluation of quoted companies on their earnings performance and growth prospects continue. We note that income investors have sustained buying into interim dividend-paying stocks.

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Ambrose Omordion

CRO|Investdata Consulting Ltd

Tel: 08028164085, 08179547605

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