Bull Trend May Linger, Amidst Repositioning For Q3 Earnings Season, Year-end

Market Update for October 13

Midweek’s trading on the Nigerian Exchange had a stronger bullish momentum and positive sentiments to continue its positive outing as the benchmark NGX All-Share index closed higher on a very high traded volume and increased buying interest across the major sectors, extending the bull run for a second successive session. In the process, it broke out the minor and major resistance as the index action traded above the psychological line of 41,000 after touching 41,072.67 bps, its peak in eight months.

The money inflow index continued to look up, reading 93.53 points an indication of the flow of funds into the equity space on a high volume that reveals the presence of more institutional investors in the market, with crude oil trading above $83 in the international markets, even when Nigeria’s Debt Management Office (DMO) sold N187.24bn worth of notes, against N121. 66bn offered at its NTB auctions last week. The 91-day, 182-day, and 364-day notes remained unchanged, as they were allotted at 2.5%, 3.5%, and 7.25% respectively, while the one-year paper fell by 25bps after it rose by 30bps in the last auction to 7.5% for 364d-days. 

This slight decline in one-year TB rate ahead of September inflation data and Q3 earnings reporting season may further support inflow to dividend-paying stocks on the NGX, as market fundamentals wax stronger in the face of rising oil prices. Others are the positive economic data, improving transactions on the exchange, and the low market’s Price to Earnings Ratio that reveals the undervalued nature of the general market.

Technically, the continued breakouts and prevailing chart patterns are revealing buy opportunities, as the NGX index action head to breakout another minor and major resistance levels of 41,087.40bps and 41,234.33bps that confirm a continuation of an uptrend on the fact that buyers are taking over the market ahead of the Q3 numbers. However, the state of expected earnings reports and level of liquidity in the equity space will determine the rate and height of rally in this October and indeed the Q4.

Investors should hold onto their high value and growth stock positions, while the direction of the fixed income market, by way of yields and rates, is still unclear, though not unexpected, since funds flow to where there is a higher return.

Wednesday’s trading opened in the green and was sustained for the rest of the session, despite oscillating on position taking in banking stocks and others that pushed the composite index to an intraday high of 41,072.67 basis points, from its lows of 40,896.96bps, after which it closed above the opening points at 41,051.19bps.

Market technicals were positive and mixed as volume traded was lower than the previous day in the midst of breadth favouring the bulls, and positive sentiment as revealed by Investdata’s Sentiment Report showing 88% ‘buy’ position and 12% sell volume. The total transaction volume index stood at 1.57 points, just as the energy behind the day’s performance was strong, with MFI looking reading 93.53 points from the previous day’s 89.96 points an indication that money entered into the market.

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Index and Market Caps

The NGX All-Share index, at the end of the day’s trading, gained 154.23 basis points and closed at 41,051.19bps after opening at 40,896.96bps, representing a 0.38% growth, just as market capitalization rose by N80.36bn, closing at N21.39tr, from the opening value of N21.31tr, also representing 0.38% value gain.

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Midweek’s upturn was driven by accumulation in stocks like Okomu Oil, Lafarge Africa, FBNH, Access Bank, GTCO, Ecobank Transnational Incorporated, United Capital, Cadbury, Zenith Bank, Fidelity Bank UBA, Oando, and Dangote Sugar, among others, which impacted positively on Year-To-Date gain, raising it to 1.94%. Market capitalization was up by N334.42bn YTD, representing a 1.59% growth from the year’s opening value.

Bullish Sector Indices

Performance indexes across sectors were up, led by the NGX Banking which gained 1.40%, followed by Oil/Gas, Insurance, Consumer and Industrial goods with 0.51%, 0.42%, 0.35%, and 0.15% respectively.

Market breadth was positive, as gainers outnumbered losers in the ratio of 29:14, while activities in volume and value terms were up, after investors traded 446.17m shares worth N4.47bn, compared to the previous day’s 563.88m units valued at N5.10bn. Volume was driven by trades in FBNH, Universal Insurance, ETI, GTCO, and Fidelity Bank.

Transcorp Hotel and Champion Breweries were the best performing, after gaining 9.94% and 9.88% to close at N5.97 and N2.78 per share respectively on market forces and the news of the planned buyout of the retail investors by the majority shareholder, and ahead of the Q3 numbers. On the flip side, FTN Cocoa and ABC Transport lost8% and 5.88% respectively, closing at N0.46 and N0.32per share purely on profit-taking and market forces.

Market Outlook

We expect a continuation of the trend as institutional players rebalance their portfolios and reposition for Q3 earnings season and year-end. Just as candlestick formation support uptrend on a high volume. It is equally noteworthy that any pullback, for now, is for accumulation ahead of economic data and earnings reporting season. Also, many stocks are trading within their buy ranges, a situation expected to attract more funds into the equity space, given the Dividend Yield capable of serving as a hedge against inflation.

Also, institutional investors and others continue to digest recently release economic data, the outcome of the Treasury Bill auction was 91 and 182 days tenor rate remain unchanged and 364 days slide down by 25points to 7.25% for a whole one year ahead of last quarter and year-end repositioning of portfolios. Also, investors are still observing the interplay of forces in the FX market as the CBN postpones the launch of the new digital currency platform. The day’s low volume suggests that institutional investors and others are not making move yet in the market, as they look at the economic data and policy direction of the economic managers. It is noteworthy that oil prices rebounded in the international market; corporate actions, as well as the interim dividend possibilities, are around the corner.

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Ambrose Omordion

CRO|Investdata Consulting Ltd




Tel: 08028164085, 08179547605

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