Bearish Sentiment On NGX As Investors, Traders Reprice Equities On Impact Of MPC Rates Hike

Market Update for February   27


The Nigerian Exchange extended its bearish sentiments on Tuesday, following selloffs in highly priced stocks and profit taking in blue chip companies that weighed on the benchmark NGX All Share index that closed lower, as the market reacted immediately to the 4% increase in monetary policy rate by the Central Bank of Nigeria (CBN) to 22.75% from 18.75%. The rate hike, the highest since 2007, came  eight months after the last MPC meeting in July 2023. The 400 basis points hike is equally the new record high in the history of the CBN.

This position did not come as a surprise to many, however, since Olayemi Cardoso, the new CBN governor had signaled this since November 2023, coupled with the failure to hold a policy meeting for so long a time, with inflation rate climbing to almost 28-year high at 29.9%. It is also the highest since Nigeria returned to democracy in May 1999, while the Naira depreciation is hitting almost 70% against dollar in the New Year 2024.

Selling pressure continued across the major sectors of the market in reaction to rate hike, which was expected as portfolio rebalancing and sector rotation persists. Just as market players remained confident in the midst of dividend expectations and volatility. More companies during the session notified the exchange of their board resolutions on the audited financials of 2023 and submission to their regulators, while other on their board meeting dates for approval of dividend and the financial statement of 2023. As Nestle Nigeria made available it full year audited account to the market with interim and full year dividend due to negative earnings as a result of FX losses.

The NGX All-Share pulled back further on a low traded volume and negative market breadth as selloffs hit banking stocks and others ahead of their corporate actions any moment from now till end of the quarter. Even as market players reacted to the seeming mismatch of policies by the fiscal and monetary authorities that is evidence in the rising macroeconomic headwinds. As end to the situation is not insight due to the triple evils of Naira devaluation, imported inflation and lingering insecurity, among others. These continue to weaken the purchasing power of Nigerians, wiping out their entire savings. Even when the rate hike is to encourage savings that leads to investing.

The change in trend and momentum persist, as the index trade below the T-Line to gather more strength and surpass the resistance level when it reverses up, already the index’s action is still within the distribution phase. The outcome of policy meeting today will shape and give direction to the market, as portfolio investors continue to diversify their investments across different windows on the strength of higher yields in fixed income market instruments, despite the runaway inflation environment.

The continued pullbacks and correction in the market creates buy opportunity for dividend investors ahead of the release of more audited accounts. Investors should watch out for the value areas of resistance and support levels, as more earnings hit the market any moment from now. The index’s action has displayed a mixed picture as market players eagerly await numbers from the companies, following the optimism fueled by the belief that the impressive performance from the financial sector among others may impact the market positively. This is despite concerns about the changing fundamentals of the economy in the face of rising macroeconomic headwinds that will support a revaluation of assets.

The equity market remains a leading indicator of the economy any time and any day, as such all eyes are still on the fiscal and monetary authorities for a clear direction of where the economy is heading, given developments in the FX market and global economy, especially the sustained geopolitical tensions in the Middle East and Eastern Europe. There is also the fear of a recession, among other issues that will continue to influence investment decisions, while driving volatility. The NGX index’s action trades below the T-line on daily basis in the midst of high volatility and mixed momentum to remain above the short- and long-term Moving Averages on the weekly and monthly time frame.

The chart pattern and candlestick formation at the end of the trading session revealed continuation of downtrend that requires confirmation as trading open on today.  Therefore, market players 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 index’s action is still at overbought state with bearish money flow divergent which a topping chart pattern that signal correction.

The momentum indicators signaled weakness in the market, as the ADX continues to look down at 49.67, while RSI and Money Flow Index were mixed to read 56.09 and 51.42 points against the previous session 61.40 and 50.67 points respectively. This should be watch by players as they trade with caution because funds are still leaving to the market. The trading volume pattern suggests hold and watch disposition of market players, as traders reduce position in some sectors in the face of others investment windows returns remain below inflation and falling Naira.

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Oil price inched up on Tuesday to continue its oscillation, as it trades at $83.36 per barrel in the midst of OPEC extending its production cuts and weak global demand outlook. As Middle East conflict and that of Ukraine and Russia war persisted in the face of inflation resurfacing again.  The rising geopolitical tension across the globe is also a major threat to many economies and the commodity market. Also, oil supply increase by OPEC and others impact oil price as it continued to oscillate. This trend may likely continue in 2024, this up and down movement of oil price also continues to drive volatility.

Tuesday’s trading session opened slightly in the red and it was sustained, despite oscillating on profit taking and selloffs in financial stocks and others. This pushed the NGX’s index to an intraday low of 100,582.90bps, from its highs of 102,026.7bps, before closing sharply below its opening figure at 100,582.90ps.

Market technicals for the session were negative and mixed, as volume was lower compared to the previous session in the midst of breadth favoring the bears on a selling pressure as revealed by Investdata’s Sentiments Report showing 0% buy position and 100% sell volume. The total transaction volume index stood at 0.52 points, just as impetus behind the day’s performance was relatively weak as Money Flow Index is looking up at 51.42pts, from the previous day’s 50.67pts, indicating that funds entered the market, despite closing lower.

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Index and Market Caps

At the end of trading, the benchmark NGXASI shed 1,412.64 basis points, closing at 100,582.89bps after opening at 101,995.53bps, representing a 1.39% decline, just as market capitalization fell by N773bn, closing at N55.04tr from the previous day’s N55.81tr, which also represented a 1.39% value loss.

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The downturn was driven by selloffs in the shares of MTNN, FBNH, UACN, PZ, Nascon, UBA, Accesscorp, Flourmill and Mansard, among others, which impacted mildly on Year-To-Date gain which reduced to 34.52%. Market capitalization YTD gain stood at N13.12 trillion, representing 34.51% above its opening level for the year.

Bearish Sector Indices

The sectoral performance indexes for the session were in red, save for NGX Energy that  closed flat, while NGX Banking led the decliners after losing 3.35% followed by Insurance , Consumer  and Industrial goods with 2.19%, 0.17% and 0.05% respectively.

Market breadth was negative with losers outnumbering gains in the ratio of 25:10, while activities in volume and value were down after players exchanged 280.46m shares worth N6.12bn. Volume was driven by trades in, Transcorp, Accesscorp, UBA, Zenith Bank and Nascon.

Africa Prudential and Omatek were the best performing stocks, gaining 9.86% each closing at N7.80 and N0.78 per share respectively on dividend expectation and sentiment. On the flip side, FBNH and Multiverse lost 10% each, closing at N30.60 and N15.30 per share, purely on profit taking and selloffs.

Market Outlook

We expect bearish sentiment to continue as players digest outcome of MPC meeting rate hike of 400bps to 22.75% to reassess market fundamentals and opportunities in the face of expected audited corporate earnings and ongoing portfolio rebalancing. This is amidst 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