Bull trend May Resurface On Position-Taking, Portfolio Rotations

Market Update for May 10

Trading activities on the Nigerian Exchange on Tuesday witnessed a slowdown of the bullish run, following profit booking in some highly priced stocks pulling back the benchmark NGX All-Share index (NGXASI )marginally on a low traded volume and positive market breadth. This halted 18 consecutive sessions of bull transition in the midst buying interests in some sectors and positive sentiments. The reversal candlestick pattern formation at the end of trading session need to be confirmed as it also signaling a market resisting further decline.

As the March year-end accounts start hitting the market with their audited full-year earnings reports any moment from today, reactions to the numbers will support the uptrend and market, as the NGX index remains above the 51,000 mark. It is noteworthy that companies like Okomu Oil, International Breweries, Champion, Cadbury and Unilever, among others are hitting new 52-week highs, however, on a low traded volume in the midst of positive sentiments for healthcare, agribusiness, consumer goods and energy stocks. Also, there were activities in blue chips that posted impressive Q1 numbers, as stocks provide strong earnings yields that offer protection against inflation. 

Meanwhile, market players continue to digest and analyze corporate earnings and the latest macroeconomic data ahead of the April consumer price index expected from the National Bureau of Statistics on Monday, May 16, 2022, as fixed-income yields decline in the face of the body movement from the CBN’s monetary policy and posture, signaling a slim possibility of rate hike at the forthcoming Monetary Policy Committee meeting. The expected April inflation rate is likely to tick up, amid continued global pressure caused by the ongoing war in Ukraine, and geopolitical concerns.    

Despite the slowdown in the uptrend, the bullish trend was attributed to investors’ search for stocks with good fundamentals and positive returns above inflation rate. Also notable is the fact that players are keenly observing what is happening on the nation’s economic front, in the face of another Central Bank of Nigeria (CBN) Treasury Bills primary market auction.

Fixed income market players await the outcome of today’s auction, while seeking to hedge against the spiraling inflation. Stakeholders are, however, anxiously looking forward 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 national assembly had order NNPC to provide aviation fuel for local airline. 

As stated earlier, buying interests and positive sentiments continued, despite the profit-taking move in some stocks in the face of mixed volume patterns 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.

Oil price continues to oscillate at above $104 per barrel in the international market, amidst the EU’s embargo on the importation of Russian oil, the increase in production output by OPEC, and resurgence of the COVID-19 infection rate in some Chinese provinces, resulting to lockdown in affected areas. The high cost of crude oil and diesel used for production by industries and businesses generally 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 correction is 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 signals 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 pulled back slightly, but remains 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 support level is 50,922.91bps region, while volatility persists and uptrends towards the next breakdown sported around 51,562.70bps. Should the index break this point, the next visible support is 51.212,84bps.

Technically, the NGX index resisted decline 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.

Tuesday’s trading started slightly on the downside and was sustained for the rest of the session, despite oscillating on strong demand for blue-chips stocks and profit-taking in some big names. This situation pushed the NGX’s index to an intraday low of 51,562.68bps from its highs of 51,902.48ps, before closing below its opening points at 51,805.41 bps.  

Market technicals were positive and strong as volume traded was lower than the previous day’s in the midst of breadth favouring the bulls on buying sentiments as revealed by Investdata’s Sentiments Report showing 71% ‘buy’ volume and 29% sell position. Total transaction volume index stood at 1.02 points, just as momentum behind the day’s performance remained strong with Money Flow Index looking flat at 95.73pts, from the previous day’s 95.75pts, indicating that funds were flat in the market.

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Index and Market Caps

The composite NGX All-Share index, at the end of Tuesday’s trading shed 97.07bps to close at 51,805.41bps, after opening at 51,902.48bps, representing a 0.19% drop. Similarly, market capitalization fell by N52.66bn, closing at N27.93tr, from the previous day’s N27.98tr, which also represented a 0.19% value loss.

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Meanwhile, Tuesday’s downturn was driven by profit-taking in MTNN, NB, Nahco, Zenith Bank, Fidson, Africa Prudential and Fidelity Bank, among others. This impacted negatively on Year-To-Date gain, which dropped to 21.28%. Market capitalization growth stood at N5.73tr YTD, representing a 25.46% rise over the opening level for the year.

Bullish Sector Indices

Performance indexes across sectors were bullish, except for NGX Banking that closed 0.06% lower, while the NGX Insurance led the advancers, gaining 2.14%, followed by Energy, Consumer goods and industrial goods with 0.97%, 0.78% and 0.06% respectively.

Market breadth remained positive, as gainers outnumbered losers in the ratio of 35:13; just as activities in volume and value terms were down after stockbrokers traded 327.08m shares worth N4.91bn. Volume was driven by trades in GTCO,  Transcorp, FBNH, Oando and Regency Insurance.

May & Baker and Okomu Oil were the best-performing stocks of the session, gaining 10% each, closing at N4.84 and N187.00per share respectively on the impressive Q1 earnings and positive sentiment for the sectors. On the flip side, Nahco and Mutual Benefits Assurance lost 4.12% and 3.85% respectively, closing at N6.51 and N0.25 per share, on profit taking.

Market Outlook

We expect the bulls to return on the increasing position-taking ahead Airtel Africa’s full-year result expected to hit the market today, and portfolio rotations as market players digest the better-than-expected Q1 corporate earnings released. There are also March year-end 2022 audited financials expected with dividend announcements to support 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