Bear Trends, Portfolio Realignment Yet On Low Stock Valuation, Q1 Earnings Inflow

Market Update for May 22

The Nigerian Exchange, on Wednesday experienced yet another setback, as the bear resurfaced as market players reacted apparently to latest rate hike by Central Bank of Nigeria (CBN) at its two-day meeting of its Monetary Policy Committee which ended on Tuesday. This was made worse by the outcome of midweek’s Treasury Bills primary  market auctions which weighed on the composite NGX All-Share index as it closed lower, halting the range-bound by pulling back.

This circular flow of funds is bound to continue as sector rotation and portfolio rebalancing persist in the face of higher yields in fixed income market and sectors that will be net beneficial to the high interest rate environment, as the market heads to the second half of the year. It is, however, noteworthy that the high inflationary environment has thrown many investment windows into negative real rate of return. This is especially true of the fixed income market irrespective of the prevailing high yields. Also, the composite NGXASI which measures equity market performance is already down to a year-to-date gain of 31.23%, and still on the southward spin.

The benchmark NGXASI pulled back at end of midweek, halting two consecutive sessions of bull transition 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 selling 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 rest on the T-line but below 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.

Chams notified the market of the appointment of a director, as Airtel Africa continues its share buyback, just as International Breweries gave notice of its right issue that opened on May 21 to close June 10, 2024. 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 week on a selloffs as revealed by candlesticks formation and momentum indicators. As ADX is looking down at 24.89, while RSI and Money Flow Index are down to read 40.26 and 35.66 points against the previous session 41.56 and 45.41 points respectively. Market players should watch this current trend and trade with caution after the index had inched up 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.

Meanwhile, Wednesday’s trading started 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 98,082.05bps from its highs of 98,374.11bps, before closing below its opening figure at 98,129.16bps.

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 selling sentiment as revealed by Investdata’s Sentiments Report showing  16% buy position and 84% sell volume. The total transaction volume index stood at 0.64 points, just as energy behind the day’s performance was weak as Money Flow Index sliding  to read  35.66pts, from the previous day’s 45.41pts, indicating that funds left the market.

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Index and Market Caps

The NGXASI at the close of the day trading lost 156.17bps, closing at 98,129.16bps after opening at 98,285.33bps, representing a 0.16% drop, just as market capitalization rose by N89.00bn, closing at N55.51tr from the previous day’s N55.60tr, which also represented a 0.16% value loss.

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Midweek’s downturn was driven by profit taking and selloffs in the shares of UBA, Guinness, Fidelity Bank, Aiico and Cornerstone among others. This impacted mildly on Year-To-Date gain which dropped to 31.23%. Market capitalization YTD gain stood at N11.16tr, representing 36.53% above its opening level for the year.

Mixed Sector Indices

The sectoral performance indexes were mixed, as the NGX Industrial and Consumer Goods closed 0.18% and 0.02% higher respectively, while the NGX Banking index led the decliners after losing 2.01% followed Insurance with 0.87%.  Just as NGX Energy finished flat.

Market breadth was negative as losers outnumbered gainers in the ratio of 21:15, while transactions in volume and value were up after investors exchanged  271.71m shares worth N5.43bn. Volume was driven by trades in   Accesscorp, Zenith Bank, GTCO, UBA and Transcorp.

Tantalizer and Wapic Insurance were the best performing stocks, gaining 8.00% and 7.81% respectively, closing at N0.54 and N0.69 per share respectively on market forces and sentiment. On the flip side, Multiverse and Cornerstone l lost 9.82% and 9.52% respectively, closing at N12.40 and N1.90per 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