Bull Trend May Linger On Increased Positioning In Blue-Chips, March Year-end Accounts

Market Update for May 11

Equity prices closed higher on the Nigerian Exchange at the midweek, as the composite NGX All-Share Index rebounded on increased bargain hunting activities of market players, thereby halting the previous session’s profit taking. This pushed the market index and capitalization above the 52,000 psychological line, and N28tr mark respectively to trade around the 2008 market peak. The market has so far gained over a trillion naira in the six trading sessions of May, as the bull dominance continues on demand for the shares of telecoms giants- Airtel Africa, and MTNN, as well as Dangote Cement, one of the biggest companies on the bourse, among others. These gains impacted the benchmark index positively, as more impressive earnings continue to hit the market, especially Airtel Africa’s full-year earnings that was released to the market on Wednesday.

The nation’s economy sustained its positive GDP growth in Q3 and Q4 2021 as shown through the report released by the National Bureau of Statistics (NBS), as all eyes are on 2022 Q1 national output expected to hit the investing public May 24, 2022, while the April consumer price index is slated for release on Monday, May 16, 2022 to reveal the state of the economy. These expected macroeconomic indices and the decline in the fixed income market yields in the face of higher earnings yields in the stock market, is likely to attract more funds into the equity space. Ahead of the next Monetary Policy Committee meeting we note that the body movement from the CBN signals a slim possibility of rate hike.

With Airtel Africa kicking off the submission of the March full-year earnings with impressive numbers to sustain the bull run, the following companies Flour Mills Nigeria, Honeywell, University Press, Learn Africa, Academy Press, Redstar Express, NNFM and others are expected to release their reports between now and June 30, 2022. This is likely to support the bull trend as investors searching for stocks with good fundamentals and positive returns above the inflation rate.  Also notable is the fact that players are keenly observing what is happening on the nation’s economic front, as Central Bank of Nigeria (CBN) Treasury Bills rate for the 364-day decline slightly at the end of yesterday auction.

On this note, we expected the fixed income market players to hedge against the spiraling inflation in high earnings yields stocks. Stakeholders are, however, anxiously awaiting the plans by the CBN to intervene in the petrol products sector, which as announced is targeted at making premium motor spirit and diesel available, thereby easing the pain of manufacturers, SMEs, and households across the country, in the face of the epileptic power supply.  Just as the National Assembly ordered the NNPC to provide aviation fuel for local airline. 

As stated earlier, buying interests and positive sentiments continued on an above average traded volume and increased positioning in blue chips on the strength of their earnings power. Tentatively, the continued mixed direction of fixed income market yields and TB rates may continue supporting the flow of funds into the stock market, on strong demand for stocks in this prevailing uptrend and positive sentiment amidst the ongoing war in Ukraine that has influenced the global markets in recent times.

Also, the rebound in oil price is a plus for the market, as it trades above $107 per barrel in the international market, in the midst of the EU’s embargo on the importation of Russian oil, increase in production output by OPEC, and resurgence of the Covid 19 in some provinces in China that resulted to lockdown in affected areas. The high cost of crude oil and diesel recording its high price are pushing production and living costs up, heightening inflationary pressure across the globe on a weak economic outlook, thereby influencing monetary policies of central banks as they move to checkmate the impacts of the Russia-Ukraine conflict on the global economy to avoid a global recession. The uptick in domestic inflation is a potent threat to the fixed income market and investment yields, which should be an indication that more funds may likely flow into the equity space as institutional investors balance their portfolios.

However, we warn that market corrections are underway as a result of profit-taking, hence the need to rely on your stop-loss effectively at this point, even as the markup phase signal continuation, especially when the high cap stocks that control 70% of market capitalisation move up ahead of reactions to their earnings and expected dividend payments in May and June 2022.   

The NGX index’s action retraced up to remain in the markup phase, trading above the ‘T-Line’ and 20-day moving average. The market is still strong ahead of any correction since the strong resistance level is 53,100bps which it tested recently, while volatility persists and uptrends towards the next breakout sported around 53.030.50bps. Should the index break this point, the next visible resistance is 53.288,84bps.

Technically, the NGX index is strong and rallying on impressive earnings and strong demand for stocks. The possibility of the market sustaining this trend is high as a function of stronger corporate earnings and improved economic conditions during this season, following which we advise investors to play defensive stocks to reduce investment risks around the market.

Meanwhile, midweek’s trading opened sharply on the upside and was sustained throughout the session, despite oscillating on strong demand for blue-chips stocks and profit taking in some stocks, a situation that pushed the NGX’s index to an intraday high of 53,064.58bps from its lows of 51,805.40ps, before closing above its opening points at 52,838.45 bps.  

Market technicals were positive and strong, as volume traded was higher than the previous day’s in the midst of positive breadth and buying sentiment as revealed by Investdata’s Sentiments Report showing an 82% ‘buy’ volume and 18% sell position. Total transaction volume index stood at 1.26 points, just as momentum behind the day’s performance remained strong with Money Flow Index inching up at 95.80pts, from the previous day’s 95.75pts, indicating that funds entered in the market.

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Index and Market Caps

At the end of Wednesday trading, the NGX All-Share index gained 1033.04bps, closing at 52,838.45bps, after opening at 51,805.41bps, representing a 1.99% growth. Similarly, market capitalization rose by N556.93bn, closing at N28.49tr, from the previous day’s N27.93tr, which also represented a 1.99% appreciation in value.

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Midweek’s gain was driven by accumulation in MTNN, Okomu Oil, Dangote Cement, NB, Zenith Bank, GSK, GTCO and Flour Mills, among others. This impacted positively on Year-To-Date gain, which increased to 23.70%. Market capitalization growth stood at N6.24tr YTD, representing a 27.45% rise over the opening level for the year.

Bullish Sector Indices

Performance indexes across sectors were in green, led the NGX Consumer Goods after gaining 1.39%, followed by industrial Goods, Insurance, Energy and Banking with 1.41%, 0.84%, 0.10% and 0.03% respectively.

Market breadth remained positive, as gainers outnumbered losers in the ratio of 41:27; just as activities in volume and value terms were up after players exchanged 417.39m shares worth N7.33bn. Volume was driven by trades in Jaiz Bank, Transcorp, International Breweries, Unilever and Fidelity Bank.

CWG and Okomu Oil were the best-performing stocks for the session, gaining 10% each, closing at N0.99 and N205.70 per share respectively on market forces and impressive Q1 earnings/positive sentiment for the sector. On the flip side, Ikeja Hotel and BUA Foods lost 10% each, closing at N1.17 and N56.70 per share, on profit taking and selloffs.

Market Outlook

We expect the bulls to continue on increasing position taking as the market reacted to Airtel Africa’s full-year result and portfolio rotations as market players digest the better-than-expected Q1 corporate earnings released, ahead of March year-end 2022 audited financials with dividend announcements to support an uptrend in the new month amid the rebound in oil prices. Also, the market continues to interpret economic data in relationship with the crude oil price and other factors, in the midst of profit-taking and portfolio rebalancing. This will result in market players targeting fundamentally sound and dividend-paying stocks in the hope of dividend announcements, as 2021 Q4 GDP up at 3.98%, while the International Monetary Fund has projected the nation’s economy to grow by 3.4% on rising oil price in the international market.

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Ambrose Omordion

CRO|Investdata Consulting Ltd





Tel: 08028164085, 08179547605