Bearish Sentiment, Cautious Trading Continue On NGX, Amid Bargain Hunting, Portfolio Reshuffling

Market Update for July 14

The nation’s stock market extended its bearish mood for the second successive session in the short trading week, confirming the decline phase of the market as it traded below the 50-day moving average in the midst of increasing volatility and mixed sentiments ahead of the expected economic data and corporate earnings reports.

The continued pullbacks in the face of a low traded volume signal the subsisting indecision and cautious trading as many players remain on the sidelines while the rising inflation rate across the globe and rates hikes are slowing down economic growth and pointing to recession. However, despite the prevailing challenges and mixed outlook of many economies, there are opportunities in some sectors for medium to long-term investors to hedge against the soaring inflation and down market, just as the half-year earnings reporting season had kicked off.

The second half of the year has started on a correction wave that reflects profit booking, and selloffs among the highly priced stocks, medium and low cap companies, coupled with price adjustment for corporate actions of December year-ended 2021. As such, 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 side trends to resist further decline.

The new market environment of rising inflation and interest rates calls for new trading and investing strategies, as factors that kept the market in its oscillating trend remain unchanged. This is happening amidst the expectation of interim dividend-paying corporate earnings, and others will be game-changers as we go further into the quarter with increasing political activities ahead of the 2023 general elections and the ongoing war between Russia and Ukraine.  Also, inflation rates in the US hit a 40-year high at 9.1% and beyond expectation, signaling a higher rate hike by Fed, as the IMF has recently downgraded the world economic outlook due to the geopolitical crisis, rising inflation and oscillating oil prices.

To navigate the month profitability using fundamental and technical analysis to run, join investdata live sessions at noon every trading day “and 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 since the beginning of the week, it is time to go shopping for undervalued stocks, sectors and the next insider playing opportunity.”

Technically, the NGX index action is on the decline phase as noted earlier on the daily and weekly -time frame, supported by ‘selloffs’ in the medium cap stocks ahead of earnings reports. The daily index and price actions as we go into the earnings season will give direction as to what we should do and expect in Q3, just as more insights into the entire second half will unfold. Market recovery at this point may be powerful, depending on the state of the expected corporate and economic numbers, although with the possibility of maintaining what we saw in 2021 and the Q1 corporate earnings, as portfolio rebalancing and sector rotation continue.

Market players are implored to watch the price actions and volume, which simply mean that the market tells you what to do, and not the other way around, because the price is always right and does not care whatever a trader feels. Bull markets can go on for days, weeks, months, and years, but bear markets happen unexpectedly and can quickly destroy a trader’s profits, or even trading account if a stop loss is not in use.

Oil price is still trading below $100 per barrel in the international market, despite the seeming rebound at $99.60 per barrel, after COVID-19 resurfaced again in some China provinces that led to yet another restriction, amid worries over the weakening demand on increasing fear of a recession, as economic data are pointing to deflation or recession.  These have continued to influence the monetary policy options of central banks as they move to checkmate impacts of the Russia-Ukraine conflict on the global economy to avoid the looming economic recession. Nigeria’s soaring inflation is a potent threat to the fixed income market and investment yields, which should be an indication that there will be a reversal of funds flowing back to equity space in no distant time, as institutional investors rebalance their portfolios.

The possibility of the trend being sustained is high, and a function of market forces and improved economic conditions during this month and beyond, following which we advise investors to play defensive stocks and reduce investment risks around the market.

Thursday’s trading started slightly on the downside and oscillated throughout the session on selloffs and position taking in blue-chip stocks, a situation that pushed the NGX’s index to an intraday low of 51,304.74bps from its highs of 51,390.25ps before closing below its opening points at 51,339.01bps.

Market technicals were positive and mixed, with lower volume traded than the previous day in the midst of positive breadth on a mixed sentiment as revealed by Investdata’s Sentiments Report showing 40% buy position and 60% sell volume. The total transaction volume index stood at 0.47 points, just as energy behind the day’s performance was weak as Money Flow Index is looking down at 34.39pts, from the previous day’s 40.71pts, indicating that funds left the market.

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Index and Market Caps

The composite NGX All-Share Index, at the end of Thursday’s trading dropped by 51.24bps, closing at 51,339.01bps, after opening at 51,390.25bps, representing a 0.10% drop. Similarly, market capitalization fell by N28.05bn, closing at N27.69tr, from the previous day’s N27.71tr, which also represented a 0.10% value loss.

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Meanwhile, Thursday’s downturn was driven by selloffs in Lafarge, Champion Brewery, International Breweries, Accesscorp, Zenith Bank, Ikeja Hotels and UPDC, among others. This impacted mildly on Year-To-Date gain, as it dropped to 20.19%, while market capitalization growth YTD fell mildly to N4.53tr YTD, a 24.26% rise over the opening level for the year.

Bearish Sector Indices

Performance indexes across sectors were down, as NGX Consumer goods, Banking and Industrial goods closed lower by 0.93%, 0.67% and 0.02% respectively, while the NGX Insurance closed higher by 0.58%. As Oil/Gas closed flat.

Market breadth was positive, as gainers outnumbered losers in the ratio of 15:10; just as activities in volume and value terms were down, after investors exchanged 115.41m shares worth N1.21bn, with volume driven by trades in Transcorp, International Breweries, FBNH, Zenith Bank and Sterling Bank.

Academy Press and Regency Insurance   were the best-performing stocks after gaining 8.70% and 8.00%, closing at N2.25 and N0.27 per share respectively on market forces. On the flip side, Champion Breweries and Ikeja Hotel lost 7.74% and 7.69% respectively, closing at N3.55 and N1.20 per share, on selloffs and profit taking.

Market Outlook

We expect the bearish sentiment to continued, as cautious trading in the midst of bargain hunting and portfolio reshuffling, ahead of the interim dividend season and second-half of the year, while Investors digest the March audited accounts released. We note also the flow of funds into the fixed income segment on the rate hike by the CBN, as sector rotation persists and players digest the macro-economic data and Q4 unaudited earnings released so far. Analysts are also on the lookout for June consumer price index to guide investment decision and flow of funds amid oil prices oscillation. Also, the market continues to interpret the rising inflation in relation to the crude oil price and other factors, in the midst of profit-taking and portfolio rebalancing. This will result in market players targeting fundamentally sound and dividend-paying stocks in the hope of dividend announcements.

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Ambrose Omordion

CRO|Investdata Consulting Ltd

Tel: 08028164085, 08179547605

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