Bull Trend Still, On Earnings, Investor Sentiments, Ahead Economic Data, Realignments

Market Update for the Week Ended May 6 and Outlook for May 9-13

Equity prices continued to gallop on the Nigerian Exchange last week after the holidays on increased buying interest and positive sentiments that pushed the benchmark NGX All-Share index higher, breaking out several minor and major resistance levels on a high traded volume, becoming the best performing market in Africa and second in the globe with its year-to-date gain at 19.24%.

The bullish trend was sustained despite the 50 points rates hike by the US Fed, and 25 points by the Bank of England which further sent the global markets into red on panic selling as investors stayed in cash to protect their portfolios and funds. Despite this, and the ongoing war in Eastern European, stock prices back home hit new 52-week highs, especially telecom giants- MTNN and Airtel Africa, Jaiz Bank, PZ Cussons, Okomu Oil and its archrival- Presco, Julius Berger, Fidson Healthcare, University Press, Nahco, Dangote Cement, as well as brewery giants- Guinness, NB, International Breweries.  The uptrend was also despite adjustments in the share prices of NEM Insurance, Nascon Allied Industries and Seplat Energies for dividends of 22 kobo, 40 kobo, and N10.41 recommended by their directors.

While the CBN monetary policy rate remains stable at 11.5% in the midst of inflation rate uptick and expansion of private sector business activities as revealed by the April Purchasing Managers Index which rose to 55.8 points from March position 54.1 points, the fixed income yields are already threatened by the rising inflation.

This has supported the flow of funds into the equity space amid the persisting bull transition for the fourth consecutive week, on positive momentum and low price attractions as revealed by the low Price to Earnings Ratio (market PE ratio), as indicated by the recent revaluation based on the impressive 2021 and Q1 2022 corporate earnings. Also, earnings and dividend yields in the stock market are better than those from the fixed income side in the face of rising inflation, which has triggered the flow of funds into equities as revealed by the Money Flow Index. There has also been a noticeable improvement in transaction volume on a daily and weekly time frame, while also trading above the 20 and 50-day moving averages. This is despite the market volatility and uncertainty surrounding Nigeria’s pre-election year.

Meanwhile, the trading environment and conditions in the Nigerian market have changed on improved traded volume and positive sentiments, suggesting that more investors are buying into blue chips at a time of price adjustment for dividends. This is amidst reactions to the 2021 corporate actions and impressive Q1 earnings released, as reflected in the high earnings yields of most quoted companies that submitted their financials. This continued volatility may not be unexpected, given the high level of uncertainty and risks associated with a pre-election year.

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Movement Of NGXASI

The NGX index witnessed another bull run, despite the fact that there were just three trading sessions of up markets, following which the benchmark index closed higher to remain in the markup phase. All eyes are on large and medium cap stocks across all the sectors of the market due to better than expected scorecards of these companies that will support the uptrend. The rising inflation is, however, a threat already with increased negative returns in the fixed income market. This may further attract more funds into stocks as a hedge against inflation and protection of capital.

The week’s trading started on a positive note Wednesday with the NGXASI gaining 0.98%, , following the public holidays declared on Monday and Tuesday, by the government, extending the previous Friday’s positive position at the midweek. This trend was sustained on Thursday and Friday when the market closed higher by 1.42% and 0.20% respectively, bringing the week’s total gain to 2.61%, compared to the previous week’s 2.46% positive position.

In absolute terms, the benchmark index gained 1,296.09 basis points to close the week at 50,935.03 bps, after touching an intra-week high of 50,993.60 bps, from its lows of 49,636.40bps, leaving the year-to-date growth in the index 19.24%. Recall that the week opened with the index at 49,638.94bps, just as market capitalisation rose by N698.74bn, closing at N27.46tr, from the previous week’s N27.02tr, which also represented a 2.61% appreciation in value.

Stock prices continued to rally during the week as low, medium, and high cap stocks dominated the top gainers’ chart, amid buying pressure and repositioning of portfolios ahead of the April consumer price index, as investors are taking advantage of high earnings yields and breakouts to accumulate positions.

Market breadth for the week was positive, as advancers outnumbered decliners in the ratio of 49:32 on positive sentiments, as revealed by the investor sentiment report showing 86% ‘buy’ volume and 4% sell position. Money Flow Index was up at 54.81bps from the previous week’s 52.24 points, an indication that funds enter the market on a weekly and daily time frame to confirm the inflow of funds into equities.

The NGX index action remains strong on a weekly and daily charts, as the index trades above the ‘T’ line on the bullish engulfing candles to almost testing the major strong resistance levels of 51,000 points on a high traded volume to trade above 20- and 50-day moving average to reveal strength. The candlestick formation, at the end of the week, showed that the market is on an uptrend, as players digest the Q1 numbers already released to reposition their portfolios for Q2. The candlestick pattern indicates a possible continuation of the trend, depending on market forces in the new week as last Friday’s trading pattern revealed profit taking is underway.

Mixed Sectoral Indices

Sectorial performance indexes for the week were mixed, as NGX Energy and Insurance index closed lower by 1.98%, and 1.10% respectively, while NGX Consumers goods led the advancers after gaining 7.21%, followed by Industrial Goods and Banking with 3.22% and 0.26% respectively.

Activities in volume and value terms were mixed as players exchanged 1.60bn shares worth N19.60bn, compared to the previous week’s 8.21bn units valued at N49.15bn. Volume was driven by Financial Services, Conglomerates, and Consumer goods, especially by trades in Union Bank of Nigeria, FCMB, Transcorp Plc, International Breweries and Accesscorp.  

Champion Breweries and International Breweries were the best-performing stocks during the week after gaining 32.54% and 32.35% respectively, closing at N3.34 and N6.75 per share on market sentiment and impressive Q1 earnings reports. On the flip side, Oando and Trans-Nationwide Express lost 11.75% and 9.88% respectively, at N5.56 and N0.73 per share, purely on profit-taking.

Outlook for the week

On the strength of earnings and investor sentiment, we expect continuation of the trend in the new week, being the first full trading week in the month of May, as Q4 corporate earnings hit the market ahead of economic data, just as portfolio repositioning for Q2 will continue as market players analyzing economic data and numbers to guide their decision. Also, investors and traders continue reacting to the earnings power, as the revaluation of quoted companies on their earnings performance and growth prospects continue. We note that income investors have sustained buying into dividend-paying stocks,

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Ambrose Omordion

CRO|Investdata Consulting Ltd




Tel: 08028164085, 08179547605

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