Bearish Trends May Continue, Amid Portfolio Realigning, Earnings Inflow, Soaring Inflation, Ahead Of Q1 GDP

Market Update for the Week Ended April 19 and Outlook for April 22-26

Bearish wave and market corrections continued on the Nigerian Exchange for the fifth successive week in the midst of continued corporate earnings reports inflow, hot macro-economic numbers, selling pressure and higher yields in the fixed income market. This was not unexpected, given the hawkish disposition of the current leadership of the Central Bank of Nigeria (CBN) which resulted in the 600 basis points rate hike in just two months in its bid to checkmate the nation runaway inflation that has remained unabated.

That notwithstanding, the March inflation figure of 33.2% marks the 17th back-to-back month of uptick in Nigeria’s Consumer Price Index and the highest since 1999, even as food inflation is hitting 40%. The International Monetary Fund (IMF) says the nation economy could expand by 3.3% from the previous 3%, due to the ongoing government reforms, even as the Naira is appreciating against major currencies at the foreign exchange market to support productivity and attract foreign inflows.

Also, there is the reduced imported inflation, even as structural issues and a mismatch of policies by managers of the economy is fueling inflation, just as profit taking, selloffs and portfolio repositioning continue on the strength of numbers released from quoted companies and the economy. This is ahead of unaudited March year-end accounts and more Q1 2024 earnings reports to give market players insights into what they should expect from the companies in this new financial year.

Since the announcement of new capital bass for banks by the CBN, investor sentiments and confidence  remain rattled, further weighing down the market, even as negative outing has dominated the month of April  so far. This is partly responsible for the downtrend on the NGX, apart from the effect of increasing number of companies having their share price adjusted for dividend recommended by their directors. For example, during the week, the share prices of Dangote Cement, Transcorp Hotel, Berger Paints and CWG were marked down for cash dividend of  N30, 20 kobo, 80 kobo and 16 kobo respectively.

The expected earnings reports, corporate actions and other activities would shape the market, going forward, in the midst of the changing fundamentals and high liquidity in the money market.

Technically, the nation’s equity market remains relatively strong and dicey on a weekly chart, as pullbacks persisted to exhibit some mixed signals and sentiments that calls for cautious trading even as sentiment reports for the period reveals selling pressure, while MFI and RSI reads 58.05 and 66.17 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 profit taking  as dividend income investors  and bargain hunters  took advantage of pullbacks to position in 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.

Stock markets across the globe, witnessed a bearish outing on mixed macroeconmic data and increasing geopolitical tensions, as middle East conflict escalates to war between Iran and Isreal had dampened  investors sentiment, coupled with rate cut expectation not being possible again in June as US inflation ticks up in the face of  mixed Q1 corporte earnings performance that weighed on global equities index  MSCI that closed lower by 2.7%. In the new week, the outcome of Indian election, US GDP figure and direction of middle east crisis will 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 loss, after pulling back to trade below $90 at $87.11per barrel following uptick US inventories in the midst of weak global demand and fear supply tightening as a result 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

It was a bearish week on the NGX, as the benchmark NGX All-Share index recorded four sessions of  down market and one day marginal gain, despite the release of more audited 2023 full-year accounts and Q1 numbers from Unilever, Transpower, RT Brisco and others. Fidelity Bank and Industrial Medical Gases  provided their full-year earnings reports with impressive numbers, declaring dividend of 60 kobo and 50 kobo respectively.

The week’s trading opened on a negative note, extending  previous losses with the index losing  0.52% on Monday, this trend continued on Tuesday as index dropped by 1.04% but inched up at midweek after gaining 0.10%, before pulling back on Thursday and Friday by 0.06% and 0.31% respectively on continued selloffs and portfolio repositioning. This brought the week’s accumulative loss to 2.71%, against the previous week’s 1.09% red position.

Consequently, the NGX All-Share Index shed a total of 2,774.81bps, closing at 99,539.75bps, from previous week’s 102,314.56bps closing level, after  touching  an intra-week low of 99,539.75bps from a high  of 102,368.09bps. Market capitalisation also lost N1.57 trillion to N56.30tr, representing a 2.718% value loss.

The top  advancers’ table for the period was dominated by medium  and low cap stocks in the midst of profit taking and selloffs that pullback many stocks. 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 40:19 on a selling pressure as revealed by investdata sentiment report showing  0% ‘buy’ volume and 100% sell position. Money Flow Index was looking down at 58.05 points  from the previous week’s 66.03 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 98,505.66bps 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.

Bearish Sectoral Indices

The sectoral indexes for the week closed red,  except for  NGX Oil/Gas that closed flat,  while NGX Banking  index  led the decliners after losing  11.46%, followed by Insurance, Industrial and Consumer Goods  with 2.80%, 2.71  and 0.96% respectively.

Activities  in volume and value were down  as players exchanged 1.60bn shares worth N32. 31bn, compared to previous week’s 1.13bn units valued at N28.65bn. Volume was driven by Financial Services, Conglomerates  and Oil/Gas industry,  boosted specifically by  Accesscorp, UBA, Zenith Bank, Transcorp and Oando.

Morison Industry and Guinness Nigeria   were the best performing stocks for the week, after gaining 45.31% and  10% respectively, closing at N3.72 and N55.00 per share on market forces and  sentiment. On the flip side, GTCO  and Unity Bank lost 19.08% and 19% respectively, at N33.50 and N1.62per share, on profit taking and selloffs.

Outlook for the week

We expect the mixed sentiment and bearish trend to continue, as portfolio rebalancing continued in  the face of  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 90,000bps level and below is possible on correction as global and domestic events unfold.

Ambrose Omordion

CRO|Investdata Consulting Ltd

Tel: 08028164085, 08179547605