Buying Sentiments, Profit Taking Linger On NGX, Ahead Year-end Seasonality, Portfolio Rebalancing

Market Update for November 29

It was a mixed session and positive outing on the Nigerian Exchange at the midweek, as the composite NGX All-Share index closed higher, halting the previous loss on a less than average traded volume and negative market breadth. This was despite the mixed outlook for the last month of the year 2023 and Q1 2024 as a result of policy direction of the Central Bank of Nigeria (CBN) and the expected implementation of the national budget presented to the National Assemble by President Bola Tinubu Wednesday. All these are likely drive the US$1tr economy of the government, if only managers of the economy will formulate the right policies to achieve the expectation. Already, we note that there is already a divergence in economic manager’s policies and its expectation.
We warn that the hawkish stance of the CBN at this point will drive economic contraction, in an environment where growth is already weak and fragile, with high cost of funds further increasing cost of production and services, driving prices of goods and services higher, in the face of imported inflation due to forex challenges and others. The two consecutive quarters of rate hikes, as well as the proposed fresh round of bank recapitalization are expected to drive the much desired economic development in the face of a significant devaluation of the Naira and surging inflation will drive the mixed outlook of the market and economy in the first half of 2024.
Already, profit taking and selloffs resurfaced in the market, despite high priced stocks appreciation supported the market at midweek, as divergence between MACD and index action continued in the midst of low traded volume ahead of the year-end seasonality. There is also the dividend season in Q1 2024, while all eye on the Santa Claus rally, year-end window dressing and 2023 audited full-year earnings reporting season which kicks offs in January. A glimpse into what we should expect at year end has been provided by the unaudited Q3 corporate earnings reports released by listed companies.
The NGX index is still ranging and consolidating to trade above the T-Line and 71,000 mark, as it rebounded from the previous session’s level. Traders need to watch out as the market consolidates at this level of distribution phase amidst the high volatility, while the market remains the quickest way to hedge against the rising inflationary pressure in the system today. So, this ranging and correction will create another entry opportunity for discerning market players, as the market looks to another TB primary market auction to give further insights into the flow of funds in the financial market, in the midst of expected rate hike according to CBN.
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Oil price oscillation continued, as it rebounded to trade $83.21 per barrel in the midst of OPEC meeting on quota adjustment for the 2024 and rumors of Venezuela invasion plans put oil rich Guyana on edge, in the face of ceasefire in the middle east conflict. As rate hike pause by some of the central banks due to cooling inflation continue ahead of December policy meeting. The influence of demand and supply oil are worsened by the geopolitical tensions rising across the globe at a time the Russia-Ukraine war gradually approaches its third year. The war remains a major cause for concern with much more at stake than previously thought. The supply tightening due to the Russia-Ukraine war will propel the up and down movement in oil price, which also drive market volatility across the globe.
Midweek’s trading opened in the upside and its was sustained, despite oscillating for the rest of the session, on profit taking and buying interest in large cap companies, a situation that pushed the Index to an intraday high of 71,353.81bps from its lows of 71,041.05bps, before closing above its opening level at 71,283.34bps.
Market technicals were negative and mixed with a lower volume traded, when compared to the previous session, in the midst of breadth favoring the bears on a buying sentiment as revealed by Investdata’s Sentiments Report showing 77% buy position and 23% sell volume. The total transaction volume index stood at 0.83 points, just as the energy behind the day’s performance was strong, with Money Flow Index looking down to read 65.60pts, from the previous day’s 69.05pts, indicating that funds left the market, despite closing in green,
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Index and Market Caps
The NGX All-Share Index closed Wednesday’s trading with a 248.36bps gain, closing at 71,284.56bps, from the 71,041.05bps opening level, representing a 0.34% growth. Market capitalization rose by N136bn, closing at N39.00tr, from the previous day’s N38.87tr, which also represented a 0.34% value gain.

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The session upturn was driven by position taking in the shares of Seplat, Nestle, Transcorp, NNFM, Sunu Assurance, Cornerstone and Conhall among others. This impacted positively on Year-To-Date gain, as it inched up to 39.09%, while Market Capitalization YTD gain stood at N10.89tr, representing a 39.87% rise above its opening level for the year.

Bullish Sector Indices
Sectoral performance indexes closed higher, save for NGX Banking index that closed lower by 0.56%, while the NGX Oil/Gas led the advancers after gaining 6.06%, followed by Insurance and Consumer goods with 1.17% and 0.89% respectively. while NGX Industrial goods finished flat.
Market breadth was negative as losers outnumbered gainers in the ratio of 38:20, while transactions in volume and value terms were mixed, after players exchanged 360.6m shares worth N6.61bn, driven by trades in GTCO, Transcorp, UBA, NSL Tech and Accesscorp.
Seplat and Meyer were the best performing stocks, gaining 10% and 9.79%, closing atN2,310.10per and N3.59 share respectively, on market sentiment and forces. On the flip side, Guinea Insurance and Omatek lost 10% and 9.88%, closing at N0.27 and N0.73 per share, purely on the back of profit taking and selloffs.

Market Outlook
We expect mixed sentiment to continue on improved buying sentiment and profit taking ahead of year end in the midst of sector rotation and portfolio rebalancing on the strength of the better-than-expected corporate numbers released and high yields. However, we note that 2024 is beginning dividend season ahead.
Meanwhile, all eyes are on the fiscal and monetary authorities to give direction of the government reforms and policies so far.

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CRO|Investdata Consulting Ltd
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