Bear-run Continues On NGX, As Investors Rebalance Portfolios, Eye Fixed Income Instruments

Market Update for May 23

The bearish sentiment on the Nigerian Exchange continued on Thursday, as higher interest rates and yields continue influencing the flow of funds out of the equity space with the continued portfolio rebalancing and selloffs in some major sectors of the market by investors repositioning in fixed income instruments and sectors likely to benefit from this high interest environment. With the Central Bank of Nigeria (CBN) and its monetary policy committee fueling inflation with their policies in the name of taming the monster which is cost-push as a result of the high cost of funds. Others include energy cost, imported inflation due to the continued foreign exchange challenges and Naira devaluation.

Many operators in the real sector of the economy are already closing shops, or downsizing as a reflection of the impact of the high interest regime by CBN. All these considered and as discerning investors, there is need to buy into the dip, targeting undervalued companies with strong potential to grow earnings that support price and payout.

Before now, it is the best for the last, but with FBNH releasing its belated full year audited account 2023, it is now the worse for the last in dividend payment. As the holding company, after recording impressive top and bottom lines that grew by more than 100% translating to Earnings Per Share of N8.12, but could only recommend a dividend of 40 kobo, down from 50 kobo paid in 2022. This is a reflection of the weak capital adequacy ratio and non-performing loan position of the bank, compared to other first-tier banks, and despite the robust gross earnings and PAT.

The benchmark NGXASI pulled back, despite resisting decline, to extend its two consecutive sessions of bear-run on a low traded volume and negative market internals in the midst of selling sentiment and position taking in some major sectors and ahead of more corporate earnings inflow. All eyes are still on the Q1 GDP expected to reveal the state of the nation’s economy in the first three months of 2024 and the performance of government’s economic reforms policies so far in the last one year. Macroeconomic indices remain mixed and are, indeed, contracting in the face of continuing foreign exchange market challenges and the high interest rate environment.

However, the volatility and pullbacks are creating buy opportunities for discerning investors and bargain hunters as the dividend income continues with qualification and payment dates to guide positioning. Market players have continued to reposition their portfolios on the strength of Q1 numbers, inflation report and higher rates. Dividend incomes are yet to provide some level of liquidity to support the market, despite the ongoing dividend payments and AGM meeting held so far.

The NGX has continued ranging in the face of mixed sentiment across the major sectors of the market after the benchmark index slipped lower, as investors and traders take advantage of the low prices and valuation to buy into value. This is normal, given the oversold state of the market and mixed technical position as revealed by the top chart pattern at the end of the session which signals a reversal of trend or continuation that needs to be confirmed. Already, the expected corporate and economic numbers are the likely game changers, depending on the state of these numbers and unfolding happenings in the economy to further give insight and guide player’s decisions.

The NGX index’s action trades below the T-line and 50-Day Moving Average, confirming the weak momentum and selling sentiment in the market. Market players are also looking to more corporate actions to position for dividend income. Although, we see fiscal and monetary policies trying to return the nation’s economy to the path of recovery, despite the continued mismatch of policies and implementation style as oscillating oil production output persist.

AGM notifications continued on the exchange, with the latest from Etranzact, NCR Nigeria, Nascon and Champion among others.  Airtel Africa continues its share buyback, just as Initiates Plc and Seplat informed the market of insider dealings. All considered, investors should target companies with consistent track records of dividend payment, strong fundamentals and growth prospects that will support further growth in earnings which price feeds on in any market cycle.

Technically, the market is on a downtrend as strength and momentum are weak on a mixed sentiment as revealed by candlestick formation and momentum indicators. As ADX is looking down at 24.45, while RSI and Money Flow Index are down to read 39.00 and 27.39 points against the previous session 40.26 and 35.66 points respectively. Market players should watch this current trend and trade with caution after the index had pulled back again in the face of funds leaving the market slowly. Also, trading volume pattern remained mixed, to suggests wait and see in some sectors and position taking in the midst of a markup phase.

To navigate the rest of the quarter and beyond profitably using fundamental and technical analysis to run, join investdata live sessions at noon every Monday, Wednesday and Friday 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 oscillating volume of transaction witnessed in recent time, it is time to go shopping for undervalued stocks, sectors and the next insider playing opportunity.

Oil prices pulled back further at midweek, as it continues its oscillation to trade at $81.91 per barrel in the midst of expected US Fed to keep higher rate for long and high inventories ahead of OPEC meeting in June. As global demand outlook remain mixed in the face of macroeconomic data from the two largest world economies. As Middle East conflict continued to drive unclear policy direction of major central banks. Geopolitical tension across the globe remained a major threat to many economies and the commodity market and other factors that impact oil price as it continued to rally. This trend may likely continue in 2024, this up and down movement that drive volatility. As middle East conflict and war in Ukraine last.

Thursday’s trading opened slightly in the green before pulling back to oscillate throughout the session on profit taking and positioning in some stocks, a situation that pushed the NGX’s index to an intra-day low of 97,742.84bps from its highs of 98,144.45bps, before closing below its opening level at 97,977.79bps.

Market technicals for the session were weak and mixed, as volume was higher when compared to the previous session in the midst of breadth favoring the bears on a mixed sentiment as revealed by Investdata’s Sentiments Report showing 59% buy position and 41% sell volume. The total transaction volume index stood at 0.84 points, just as energy behind the day’s performance was weak as Money Flow Index sliding  to read  27.39pts, from the previous day’s 35.66pts, indicating that funds left the market.

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Index and Market Caps

The NGXASI at the close of the session lost 150.21bps, closing at 97,977.79bps after opening at 98,129.16bps, representing a 0.15% drop, just as market capitalization rose by N84.71bn, closing at N55.42tr from the previous day’s N55.51tr, which also represented a 0.15% value loss.

Attention: If you have not signed up for INVESTDATA’s buy and sell signal setup, don’t delay, because the number of stocks entering their oversold range has increased as market correction and pullbacks call for caution and positive chart patterns to be on our watchlist. These stocks have potentials to retrace, considering their earnings prospects and the oscillating moves in an upmarket and weak economy.

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Meanwhile, the session downturn was driven by profit taking and selloffs in the shares of Skyview Aviation, UBA, Guinness, NB, Zenith Bnak , Accesscorp Transcorp  Fidelity Bank, Aiico and Tantalizer among others. This impacted mildly on Year-To-Date gain which dropped to 31.03%. Market capitalization YTD gain stood at N11.00tr, representing 35.48% above its opening level for the year.

Bearish Sector Indices

The sectoral performance indexes were down, save for NGX Energy index  that closed higher by 0.72%, while the NGX Insurance index led the decliners after losing 1.90% followed Banking and  Consumer goods with 1.42% and 0.05% respectively.  Just as NGX Industrial goods finished flat.

Market breadth was negative as losers outnumbered gainers in the ratio of 28:16, while transactions in volume and value were up after investors exchanged  316.45m shares worth N7.70bn. Volume was driven by trades in   UBA, GTCO, Zenith Bank, Transcorp and Julius Beger.

C/ I Leasing and Caverton were the best performing stocks, gaining 9.00% and 7.69% respectively, closing at N3.44 and N1.40 per share respectively on market forces and sentiment. On the flip side, Skyavn  and NEM lost 9.82% and 9.52% respectively, closing at N20.70 and N7.65 per share, purely on profit taking and selloffs.

Market Outlook

We expect bearish trend and mixed sentiments to continue as players rebalance their portfolios in the midst of  low valuation, dividend investing and reactions to Q1 numbers as Insurance corporate earnings are expected with dividend announcements, while taking advantage of pullbacks to position and rebalancing portfolio.

This is amid the volatility and pullbacks that add more strength to upside potential. As such, investors should take advantage of price correction. Also looking at the trends and events across the globe and domestically.

Ambrose Omordion

CRO|Investdata Consulting Ltd