Bull Trend May Linger, As Fixed Income Investors Review Positions Ahead Q3 Earnings Season
Market Update for October 5
The bull-run and positive momentum on the Nigerian Exchange continued on Tuesday as equity prices closed higher to push the composite All-Share index above the major resistance levels on a high traded volume and strong buying interests in banking stocks and others that turn the general market performance positive. Similarly, the news of a proposed buyback of the minority shares of Airtel Africa impacted its price, after investors reacted accordingly.
There was also the expected rallying in oil prices at the international market on Tuesday, following which crude it hit a seven-year high, selling above $82 per barrel, even as analysts project that the price could soar to between $90 and $100pb before year-end. There is also the expectation that global hyperinflation may push oil prices to as high as $180pb by 2022, due to increased government spending, growing consumer demand, and supply chain crises around the globe. The exposure by banks to the oil and energy sectors in recent years remains high, following which many have made provision for these non-performing loans according to Central Bank of Nigeria prudential guidelines, This followed the losses suffered by many companies in the sector when oil prices crashed. The resurgence in the price of crude is expected to help the recovery of these loans and impact positively on the banks’ bottom-lines as profit income.
So far, stocks like United Capital, Pharma-Deko, FBN Holdings, University Press, Consolidated Hallmark Insurance Plc, Livestock Feeds, and others have broken out their minor and major resistance level as others make new highs.
The NGX index action on Tuesday sustained its upward movement to breakout major resistance levels of 40,367.31and 40,572.31 basis points on a high traded volume to turn the market positive position with a Year-to-Date gain of 1.11% that ushered in a new uptrend in the new month and quarter. The market broke out some resistance levels on new moves, following which we should expect a slight pullback on profit-taking this week or next week before the Q3 numbers starting hitting the market as more companies notify investors of closed periods and board meeting dates. The state of the expected earnings reports and level of liquidity in equity space will determine the possibility of another rally in the new month and quarter. The two and three-year savings bond rates of 6.9% and 7.9% respectively should not threaten the equity market for now, until we see anything to the contrary. The money flow index read 79.91 points, indicating the entrance of funds into the equity space.
Investors should hold onto their high value and growth stock positions, even as the direction in the fixed income market yields and rates is still not clear, this is not unexpected as funds flow to where there are higher returns.
Tuesday’s trading opened slightly on the upside but rallied strongly on demand for banking, telecoms, and energy stocks that pushed the NGX index to an intraday high of 40,722.95bps, from its lows of 40,241.49bps, after which it closed significantly above its opening points at 40,716.66bps.
Market technicals were positive and strong with a higher volume traded than the previous day’s, in the midst of positive breadth and buying pressure as revealed by Investdata’s Sentiment Report showing 99% ‘buy’ position. Total transaction volume index stood at 1.67 points, just as the energy behind the day’s performance was strong, with Money Flow Index looking up at 79.91points, from the previous day’s 72.28points, indicating that funds entered the market.
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Index and Market Caps
At the end of Tuesday’s trading, the NGX All Share Index gained 473.61 basis points and closed at 40,716.66bps after opening at 40,243.05bps, representing a 1.18% growth, just as market capitalization rose by N246.79bn, closing at N21.22tr, from the opening value of N20.97tr, also representing 1.18% appreciation in value.
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The upturn was driven by buying interests in Airtel Africa, Julius Berger, Oando, GTCO, UBA, FBNH, Access Bank, Eterna, Dangote Sugar, and United Capital, among others, which impacted positively on Year-To-Date gain, raising it to 1.11%. Market capitalization was up by N159.98bn, representing a 0.76% growth from the year’s opening value.
Mixed Sector Indices
Performance indexes across sectors were mixed, as the NGX Insurance and Consumer Goods closed 1.15% and 0.44% down respectively, while the NGX Banking Index led the advancers, gaining 2.50%, ahead of Oil/Gas with 0.80%.
Market breadth was positive, as gainers outnumbered losers in the ratio of 32:18, while transactions in volume and value terms were up, after investors exchanged 433m shares worth N3.13bn, compared to the previous day’s 202.36bn units valued at N1.86bn. Tuesday’s volume was driven by trades in Universal Insurance, FBNH, Access Bank, GTCO, and Courtville Business Solution.
FBN Holdings and Pharma-Deko were the best performing, gaining 9.76% and 9.69% to close at N9.00 and N2.83 per share respectively on market sentiments and expected Q3 earnings report. On the flip side, University Press and Regency Insurance lost 9.63% and 8.89% respectively, closing at N1.22 and N0.41 per share purely on profit-taking.
We expect a continuation of the trend as fixed income market investors review their positions ahead of the Q3 earnings season on a positive candlestick formation to remain bullish as revealed by momentum indicators and volume. It is equally noteworthy that investors and traders are taking advantage of the likely pullback to accumulate more positions ahead of the earnings reporting season. Also noteworthy is the fact that 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 were 91 and 182 days tenor rate remain unchanged and 364 days slightly up by 30points to 7.50% 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 high volume suggests that institutional investors and others are gradually taking a position in the market, as they look at the economic data and policy direction of the economic managers. It is noteworthy that oil price pullback in the international market; corporate actions, as well as the interim dividend possibilities, are around the corner.
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