Bargain Hunting Likely, As Naira Devaluation Makes Nigerian Equities More Attractive

Market Update for the Week Ended December 8 and Outlook for Dec 11-15
Nigeria’s equity market witnessed another positive outing, despite a mixed performance over the past week, as the composite index NGXASI extended its bullish run for the seven consecutive weeks of buying sentiment and positive momentum. Transaction volume was above average even as the index made a new all-time high, pulling back on profit taking that hit highly priced stocks, even while resisting further decline as revealed by Friday’s candlestick formation to trade above the T-line. The momentum indicators on a weekly time frame remained strong as the OBV and EMA 20 signaled the fact that yet another rally is underway before the year 2023 draws to a close, but on a ranging market or consolidating move that calls for cautious trading.
The decision of the Central Bank of Nigeria to further devaluing the Naira on the official window, simply points to a mismatch of policy directions, with by the apex bank plans to hike rates for the next two quarters in its bid to cheque the prevailing hyperinflation. The devaluation is a sign that the monetary authority is not ready to combat the rising prices of goods and services, because Nigeria remains an import economy, hence the imported inflation. Already, the economy is contracting already as revealed by the Purchasing Managers’ Index that suffered a decline for the second consecutive month to 48 points, from 49.1 points in October. Another pointer is the GDP which record a slow growth of 2.54% in 2023Q3, from 2.51% in Q2 2023, in the face of low economic activities due to the increasing cost of production and living, made worse by unchecked insecurity, among other vices. We note that the CBN’s body languages points towards a desire to attract foreign inflows or investors at the expense of the local economy.
As the year is winding down, market players should take advantage of the ongoing seasonality and portfolio rebalancing to take profit and position in dividend paying companies and defensive stocks as NGX ranges in a distribution phase of the market ahead of 2024 earnings reporting and dividend season, as the year 2024 is already setting up with challenges and opportunities, so join us at Q1 Master Class to Secure your Financial Future in 2024 through Investdata Master Classes With Ambrose Omordion.
There are material shifts in the NGX index’s action as it makes a new all-time high, due to the ongoing portfolio rebalancing to hedge against inflation and market downturn on the strength of the impressive corporate earnings, outstanding numbers of share, shareholding structure and dividend history ahead of year-end Santa Claus rally and window dressing. These impacted stock prices across the board, while also reflecting on the volume of transactions and positive market breathe for the week. All attention has now moved to the policy agenda of the fiscal and monetary authorities with high hopes that they would fix the economy or put it on recovery path quickly. The disconnection of the market and economy continues to linger in the face of market volatility and weak economic activities.
The NGX remains above the T-line and 71,000 psychological line on a daily, weekly and monthly charts, as it ranges to consolidate amid buying interests in low priced stocks and blue-chip companies, which pushed the indicators marginally higher in the midst of above average traded volume. This confirm accumulation and distribution phase of the market. The seeming improvement in volume of transaction in the market is also an indication that smart money is gradually coming back to the market and mark-up in price is possible at any time and without notice. These, notwithstanding, we urge investors to wait for confirmation of trend, with bargain hunters already taking advantage of the low valuation and in the face of buying interest and profit taking to accumulate position.
To navigate the rest of the year market volatility and its mixed outlook 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 breakout of consolidation. As volume of transaction witnessed within the week remain above the average traded volume, it is time to go shopping for undervalued stocks, sectors and the next insider dealing opportunity.
Oil price during the week under review oscillated as it trades flat at $75.84 per barrel in the midst of crude oil hitting seven months’ low and OPEC output cut not making impact on price due US high inventory, despite middle east conflict moving to another dimension and mixed global macroeconomic data. Even as oil demand outlook remains mixed, despite the seeming cooling inflation and signal of rate cut in 2024. We note also the rising geopolitical tensions across the globe and supply disruptions longer, due to the Russia-Ukraine war that has lingered for more than a year, and is indeed escalating. The up and down movement of oil prices also continues to drive volatility across different investment windows.

Movement Of NGXASI
The NGX recorded mixed trend and performance of three up markets and two trading sessions in the red, while the benchmark NGX All-Share index closed higher to extend the positive momentum for the seventh successive week on an above average traded volume and buying sentiment. Even as the banking sector outperformed the market and other major sectors, despite the seeming profit taking witnessed within the period under review.
Trading for the week opened on negative note, halting the previous gains after shedding 0.66%, which was however short-lived as the index gained 0.43% on Tuesday, followed by midweek’s 0.78% gain. There was a pullback on Thursday as the index shed 0.49% before rebounding at the last trading of the week by 0.12% on buying interests in highly priced companies and banking stocks. This brought the week’s total gain to 0.17%, compared to the previous week’s 0.27% positive position.
Consequently, the benchmark NGX All-Share index inched up 121.87 basis points, closing at 71,541.74bps, compared to the week’s 71,419.87bps opening level, after touching an intra-week high of 71,866.37bps and a low of 70,741.96bps. Market capitalisation also rose by N66.70billion to N39.20 trillion representing a 0.17% appreciation in value.
The week advancers’ table was dominated by low priced stocks amid the buying sentiment in blue chip companies in the face of high volatility. Also notable is the fact that investors are taking advantage of the price oscillation and low valuation to buy into value and high dividend yield companies.
Trade metrics for the period was positive as gainers outpaced losers in the ratio of 48:32 on buying sentiments as revealed by investdata sentiment report showing 71% ‘buy’ volume and 29% sell position. Money Flow Index was looking up at 86.71bps from the previous week’s 86.28 points, an indication that funds entered the market on a weekly timeframe.

Technical View

The index’s action broke out the strong resistance level of 71,607.91 and consolidation range to test 71,866.37bps on the weekly chart and above average traded volume signaling positioning of smart money in the face of unclear direction of market now, while position trading is ongoing by investors, as the market trades above the T line on a daily, weekly and monthly time frame to sustained its uptrend in the midst of positive sentiment and buying momentum. We note also that the index is trading above the 200-day moving average on the weekly time frame.

Mixed Sectoral Indices
The sectorial performance indexes were mixed, as the NGX Banking and Consumer Goods close higher by 6.10% and 0.20% respectively, while the NGX Industrial goods led the decliners’ after losing 3%, followed by Insurance and Energy with 1.4% and 0.6% respectively.
Activities in volume and value were mixed, as players exchanged 2.42bn shares worth N40.46bn, compared to the previous week’s 2.54bn units valued at N38.64bn. Volume was driven by Financial Services, Services Industry and ICT industry. The was boosted specifically by trading in UBA, Universal Insurance, GTCO, Accesscorp and Transcorp.
Multiverse and Thomas Wyatt were the best performing stocks for the week, gaining 57% and 32.8% respectively, and closing at N9.39 and N3.32 per share on market sentiments and forces. On the flip side, Conhall Plc and Oando lost 12.7%and 12.3% respectively, at N1.10 and N10.35 per share, purely on profit taking.

Outlook for the week
We expect mixed sentiment and improve momentum on bargain hunting and portfolio rebalancing, as further devaluation makes Nigeria equities cheaper and attractive in the midst of high inflation and strong corporate earnings. Also, the market awaits the steps government would take to resolve the county’s lingering FX challenges, even as Moody’s upgraded Nigeria’s outlook to positive from stable.
However, retracement to the 68,559.46bps level and below is possible on profit taking as global and domestic events unfold.

Ambrose Omordion
CRO|Investdata Consulting Ltd
info@investdata.com.ng
ambrose.o@investdataonline.com
ambroseconsultants@yahoo.com
Tel: 08028164085, 08179547605

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