Equities

Caution, As Investors Worry Over Low Volume, FX Hiccup, Await MPC Meeting Outcome

Market Update September 16

The nation’s equity market on Thursday had mixed trading and trend to reverse the previous days gain as the benchmark index NGXASI closed lower on yet another low traded volume and negative breadth, just as investors weighed the impact of the new developments in the money and fixed income market, particularly the rates hike in Treasury Bills and new inflation data ahead of Friday’s announcement of the Monetary Policy Committee meeting outcome.

The continued low traded volume on the Nigerian Exchange recently is an indication that smart money is seating on the fence, as funds exit the market, as revealed through the daily and weekly money flow indexes. This is just as other investment windows are competing with the market, especially on the back of the ongoing devaluation that has seen the Naira at almost N600/$1 in the black market, a situation the Central Bank of Nigeria is trying to address with the plan to launch the eNaira on October 1. 

As events unfold, this is the time for investors to rethink and change their trading strategies by looking at the way of companies that depend less on imported raw materials, or had done full backward integration. The ongoing development in the foreign exchange market is likely to affect the performance of companies, especially those engaged in manufacturing and depend mainly on imported raw materials.

Meanwhile, Thursday’strading started slightly on the downside and was sustained throughout the session on selloffs and profit-taking across the board, which pushed the key performance indexes to an intraday low of 38,908.10 basis points from a high of 38,968.34bps, before closing below its opening figure at 38,911.31bps.

Market technicals were negative and weak, with lower volume traded than the previous day in the midst of negative breadth and selling pressure as revealed by Investdata’s Sentiment Report showing 95% ‘sell’ volume and 5% buy position. The total transaction volume index stood at 0.57points, just as the impetus behind the day’s performance was weak, with Money Flow Index looking down at 17.74points, from the previous day’s 23.799points, an indication that funds left the market.

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Index and Market Caps

The composite index NGXASI, at the end of the day’s trading, shed 57.03 basis points, closing at 38,911.31bps, from its opening level of 38,968.34bps, representing a 0.15% decline, just as market capitalization fell by N30bn, closing at N20.27tr, from the opening value of N20.3tr, also represented 0.15% value loss.

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The session’s downturn was driven by selloffs in Lafarge Africa, GTCO, FBNH, Honeywell, PZ, Oando, and International Breweries, among others, which impacted Year-To-Date loss mildly, which increased to 3.38%. The YTD loss in market capitalization stood at N795.17bn, representing a 3.64% decline from the year’s opening value.

Bearish Sector Indices

Performance indexes across sectors were down, except for the NGX Insurance that closed 0.47% higher, while the NGX Oil/Gas Index led the decliners after shedding 0.57%, followed by Consumer Goods, Banking, and Industrial Goods with 0.36%, 0.28%, and 0.14% respectively.

Market breadth remained negative, as losers outpaced gainers in the ratio of 17:10, while activities in volume and value terms were down after investors exchanged 130.72m shares worth N1.43bn, compared to the previous day’s 141.41m units valued at N2.97bn. Volume was driven by trades in Access Bank, Universal Insurance, Zenith Bank, GTCO, and Japaul Gold.

The best-performing stocks were Unity Bank and FTNCocoa which gained 9.62% and 8.70%, closing at N0.57 and N0.50 per share respectively on market forces. On the flip side, Eterna and SCOA lost 9.44% and 9.40% respectively, closing at N6.52 and N1.06 per share, purely on profit-taking and selloffs.

Market Outlook

Technically, the seesaw movement of the NGX index’s action on low traded volume is a concern for technical traders, as players digest the latest inflation data and TB auction rates in the midst of foreign currency illiquidity ahead of the MPC meeting’s outcome. 

Meanwhile, discerning investors and traders continue taking advantage of the market pullbacks to reposition, while many stocks remain undervalued and at the same time trading within their ‘buy’ ranges, a situation expected to attract funds into the equity space given the high dividend yields capable of serving as a hedge against inflation. Also, institutional investors and others continue to digest the Q2 GDP growth ahead of more first-tier bank results, as well as the continued repositioning of portfolios for the year’s last quarter. Also, investors are still observing the interplay of forces in the FX market as the CBN gives a guideline for the new digital currency platform. The day’s low volume suggests that institutional investors and others are still cautiously looking at the changing trade environment. It is noteworthy that oil prices rebounded in the international market; corporate actions, as well as the interim dividend possibilities, are around the corner.

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