Bearish Trend Yet, As Investors React To 2024Q1 Earnings, Portfolio Rebalancing, Bet On Q1 GDP

Market Update for the Week Ended April 26 and Outlook for April 29-May 3

The last full trading week of April on the Nigerian Exchange again closed lower, thereby  extending its negative outing for six consecutive weeks on a selling sentiment and profit taking in the face of portfolio rebalancing and position taking by dividend income investors are taking advantage of pullbacks and the prevailing low valuation to buy value.

Amid the changing market fundamentals and earnings announcement so far, one persistent concern looming largely is the runaway inflation, as rising prices in the country cast a shadow on market sentiments. This is, expectedly, is fueling apprehension among market players with the hawkish stance of the monetary authority in a bid to checkmate inflation with higher interest. This has led to higher yields in the fixed income market that put pressure in the equity space as funds continued to flow out of the stock market. This had reflected on the corrective wave and pullbacks.

Market participants are fashioning strategies to navigate this uncertain terrain, from portfolio diversification to hedging strategies, traders are exploring avenue to mitigate the impact of higher yields in the alternative investment window. At the current market situation, investors and traders should stay attuned to market dynamics and embracing a diversified approach, players can weather the correction and seize opportunities amid the downtrend.

According to the March report of  the NGX’s Domestic and Foreign investors’ participation, transaction records revealed the gradual return of hot money into the market despite the economic challenges.

The seeming low valuation of equities on the NGX remains the attraction for international funds, with the ongoing effort by the Central Bank of Nigeria to address problems in the foreign exchange market. This has given a signal to foreign investors that they will have access to FX to repatriate their returns as promised by the President, as well as the backlogs reportedly settled by the apex bank boosting their confidence to look the way of Nigeria.

The rising inflation in the matured markets calls for caution, as yields in these economies remain high, thereby  piling pressure on the outflow of funds from emerging and frontier markets, especially as rate cut by the Feds has been postponed. There also concerns that the increasing economic headwinds will affect the performance of companies, especially the real sector, as Q1 numbers released so far remained mixed. Nevertheless, the expected earnings reports and corporate actions could provide support the market.

Technically, the nation’s equity market remains relatively strong and dicey on the weekly chart, as pullbacks persist to exhibit some mixed signals and sentiments that calls for cautious trading even as sentiment reports for the period reveals selling sentiment, while MFI and RSI reads 48.19and 63.36 points respectively looking down, as the index’s action trades below the T-line on a weak momentum. The bearish trend  and negative breadth for the period occurred in the midst of selloffs and positiont taking  as dividend income investors  and bargain hunters  took advantage of pullbacks to buy into dividend paying companies with high yield, growing earnings power,  low valuation and strong fundamentals. We note that the ongoing government reforms are yet to put the economy on the path of recovery, or progress due to the continued mismatch of policies, and even somersault altogether in some cases.

The global stock markets witnessed a bullish outing on impressive corporate earnings that came from different domain, which pushed MSCI world index higher to gain 2.6% for the week. Despite US softer than expected Q1 GDP  and cooling business activities as revealed by PMI of 50.9 points for April against 52.1 points in March. Even as the increasing geopolitical tensions are already threatening many economies, as commodities prices continued to look up.  In the new week, we expect macroeconomic data Asia and Europe, also, the happening in middle east to shape the market with other news.

To navigate the rest of Q2 market volatility and its mixed outlook profitably using fundamental and technical analyses to run, join Investdata’s Live Sessions at noon every Mondays, Wednesdays and Fridays, 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 corrections and pullbacks to continue the markdown phase. As volume of transaction witnessed within the week remain low, it is time to go shopping for undervalued stocks, sector rotation and the next insider dealing opportunity.

Oil price during week oscillated to recorded weekly gain, as it trade at $89.11per barrel following the mixed macroeconomic data from US  in the midst of escalating middle east conflict. As rising geopolitical tensions threats supply, coupled with war in Ukraine and Russia disrupting  in oil output in the face of osculating price. The up and down movement of oil price has continues to drive volatility across different investment windows and inflation again.

Movement Of NGXASI

The NGX recorded a mixed performance for the week, as the benchmark NGX All-Share index dropped for two sessions and was up for three trading sessions, despite  closing lower on selloffs and buying interest in the midst of more  Q1 numbers from CAP, Berger Paints, Nigerian Breweries, Skyway Aviation, MRS Oil, Dangote Cement, Chams, Japaul Gold. Ikeja Hotel, Stanbic IBTC, Livestock Feeds and belated numbers from Oando.

Trading for the week  opened marginally positive, halting  previous losses with the index gaining   0.13% on Monday, this trend was short lived on Tuesday and midweek as the  index lost 0.35% and 1.19%  respectively on selloffs and profit taking in banking stocks. The composite index  inched up on Thursday and Friday with  0.05% and 0.02% respectively on continued buy interest in dividend paying stocks and portfolio repositioning. This brought the week’s accumulative loss to 1.39%, against the previous week’s 2.71% red position.

In all this, the  benchmark NGX All-Share Index shed a total of 1,389.84bps, closing at s98,152.91bps, from previous week’s 99.539.75bps closing level, after  touching  an intra-week low of 97,929.40bps from a high  of 99,846.26bps. Market capitalisation also lost N784.09n to N55.5tr, representing a 1.39% depreciation in value.

The week’s top  advancers’ table was dominated by medium and low cap stocks in the midst of profit taking and buying interest, as more stocks suffered losses during the period. Also notable was the fact that market players are still trading with caution, even when taking position and carrying out sector rotation  ahead of more earnings reports and unfolding events in the government reform process.

Market technicals for the period were negative and weak  as losers  outnumbered gainers  in the ratio of 43:27 on a selling sentiment as revealed by investdata sentiment report showing  13% ‘buy’ volume and 87% sell position. Money Flow Index was looking down at 48.19 points  from the previous week’s 58.05 points, an indication that funds left the market on a weekly time frame.

Technical View

The NGX index’s action formed a powerful downtrend chart pattern that revealed  correction and pullback, which needs to be confirmed in the new week, as more financial reports flow into the market to change momentum and sentiment, despite, the selling sentiment for the period and higher yields in the alternative market.

Already, the index  has entered a decline phase on the weekly and daily chart. We note that the 94,345.58bps is a strong support level on the daily and weekly time frame, even as the index on the daily time frame is declining. The market is at a critical zone as all eyes are on the financials  to support market fundamentals and attract inflow again. Also, we note that investors are taking long-term positions in the face of dividend expectations and volatility.

We also note that sellers are in control, as revealed by the selling sentiment and negative market breadth, as the index is trading above the T line and 50-Day Moving Average on the weekly chart.

Mixed Sectoral Indices

The sectoral indexes for the week were mixed, as the NGX Industrial Goods and Insurance closed higher by 0.38 and 0.02% respectively, while NGX Banking  index  led the decliners after losing  3.10%, followed by Energy and Consumer Goods  with  1.41%  and 1.15% respectively.

Transactions  in volume and value were up  as players exchanged 1.84bn shares worth N34.26bn, compared to previous week’s 1.60bn units valued at N32.31bn. Volume was driven by Financial Services, Conglomerates  and Construction/Real Estate industry,  boosted specifically by  UBA, Accesscorp, Transcorp, Zenith Bank and Oando.

Sunu Assurance and CAP were the best performing stocks for the week, after gaining 25% and  20.21% respectively, closing at N1.25 and N28.85 per share on market forces and  sentiment. On the flip side, Oando  and Sovereign Trust Insurance  lost 19.57% and 18.18% respectively, at N9.25 and N0.36per share, on profit taking and selloffs.

Outlook for the week

We expect the mixed sentiment and bearish trend to continue, as investors react to Q1 numbers in the face of portfolio rebalancing and expected earnings reports and Q1 GDP, despite the rising inflation. Bargain hunters are also expected to take advantage of pullbacks to buy into dividend stocks. Investors are watching with rapt attention.

However, retracement to the 94,000bps level and below is possible on correction as global and domestic events unfold.

Ambrose Omordion

CRO|Investdata Consulting Ltd

Tel: 08028164085, 08179547605