Cautious, Mixed Trading Yet On NGX, Amid Reactions To Rate Hike, Earnings Expectations

Market Update for July 21

Tuesday’s rate hike by the central Bank of Nigeria (CBN) weighed on the equity market Thursday as the benchmark NGX All Share index extended its bear run for a third consecutive session on a low traded volume and negative market breadth. Some major sectors of the market witnessed a selloff in reaction to MPC meeting outcome, remaining in the distribution phase amidst increased volatility and earnings expectation.

The selling sentiment and pullback at the end of Thursday’s session is, however, yet to breakdown the   52,000 mark as the market still trades above the ‘T line and 20-day moving average. The pullbacks created ‘buy; opportunities nonetheless, while we expect sector rotation to increase as investors and traders reposition their portfolios amidst the inflow of more corporate earnings in the market.

Cautious trading may likely continue in the market due to the rising inflation and rate hikes that are slowing down economic growth and pointing to a recession across the globe. However, despite the prevailing challenges and mixed outlook of many economies, there are opportunities in some sectors for medium to long-term investors to hedge against the soaring inflation and down market, even as the half-year earnings reporting season is ongoing.

Africa Prudential Plc released its half-year earnings report to the market during Thursday’s trading session with the numbers revealing an improved performance as top and bottom lines grew by 19.2% and 13% respectively, translating to 47 kobo Earnings Per Share, as against the 41 kobo posted in the same period of 2021. With the days of surprises and disappointing earnings drawing closer, it is time to keep your eyes on price actions, if you have been ignoring the charts and fighting the trends, it is your chance to step up your game. At this current market mood, investors and traders should target leaders in the various sectors with strong fundamentals, and positive technicals as the market side trends to resist further decline.

The new market environment of rising inflation, interest rates and the coming general elections call for new trading and investing strategies, as factors that kept the market in its oscillating trend remain unchanged. This is happening amidst the expectation of interim dividend-paying corporate earnings, among others game-changers as we go further into the quarter with increasing political activities ahead of the 2023 general elections and the ongoing war between Russia and Ukraine. Also, inflation rates in the US hit a 40-year high at 9.1% and beyond expectation, signaling a higher rate hike by Fed, as the IMF has recently downgraded the world economic outlook due to the geopolitical crisis, rising inflation and oscillating oil prices.

To navigate the month profitably using fundamental and technical analysis to run, join investdata live sessions at noon every trading day “and also get investdata technical toolbox to play the current state of the market do suggest that discerning investors are gradually becoming greedy, while others are fearful, as seen in the recent range market. Despite the mixed sentiment witnessed, it is time to go shopping for undervalued stocks, sectors and the next insider playing opportunity.”

Technically, the NGX index’s action is on a distribution phase as indecision and cautious trading activities heightened on increase in interest rate, despite the bull trend on medium and long term remained intact on high priced stocks rally or price gain. The daily index and price actions as we go into the earnings season will give direction as to what we should do and expect in Q3, just as more insights into the entire second half will unfold. Market recovery at this point may be powerful, depending on the state of the expected corporate and economic numbers, although with the possibility of maintaining what we saw in 2021 and the Q1 corporate earnings, as portfolio rebalancing and sector rotation continue.

Market players are implored to watch the price actions and volume, which simply means that the market tells you what to do, and not the other way around, because the price is always right and does not care whatever a trader feels. Bull markets can go on for days, weeks, months, and years, but bear markets happen unexpectedly and can quickly destroy a trader’s profits, or even trading account if a stop loss is not in use.

Oil price suffered losses for two days to $103.90 per barrel in the international market, to reflect the fear of recession, despite remaining above $100 per barrel, in the midst of slowing economic growth data from China and others.  All these have continued to influence the monetary policy options of central banks as they move to checkmate impacts of the Russia-Ukraine conflict on the global economy to avoid the looming economic recession. Nigeria’s soaring inflation is a potent threat to the fixed income market and investment yields, which should be an indication that there will be a reversal of funds flowing back to equity space in no distant time, as institutional investors rebalance their portfolios.

The possibility of the trend being sustained is high, and a function of market forces and improved economic conditions during this month and beyond, following which we advise investors to play defensive stocks and reduce investment risks around the market.

Meanwhile, Thursday trading started slightly on the downside but oscillated for the rest of the day on buy interest and selloffs in blue-chip stocks, a situation that pushed the NGX’s index to an intraday low of 52,112.42bps from its highs of 52,202.96ps before closing slightly below its opening points at 52,186.52bps.

Market technicals were negative and mixed, with lower volume traded than the previous day in the midst of breadth favoring the bears on a mixed sentiment as revealed by Investdata’s Sentiments Report showing 70% buy position and 30% sell volume. The total transaction volume index stood at 0.54 points, just as momentum behind the day’s performance was weak as Money Flow Index is looking up at 24.65pts, from the previous day’s 22.27pts, indicating that funds entered  the market, despite sliding down.

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Index and Market Caps

At the close of Thursday’s trading, the composite NGX All-Share index shed 64.52bps, closing at 52,122.00bps, after opening at 52,186.52bps, representing a 0.12% drop. Similarly, market capitalization fell by N34.79bn, closing at N28.11tr, from the previous day’s N28.14tr, which also represented a 0.12% value loss.

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Thursday’s downturn was driven by profit taking in shares of International Breweries, GSK, NEM, Lafarge, GTCO, Caverton, UPDC, Honeywell, Jaiz Bank and Sterling Bank, among others. This impacted mildly on Year-To-Date gain, as it slides to 22.02%, while market capitalization growth YTD was up slightly to N4.89tr YTD, a 26.06% rise over the opening level for the year.

Mixed Sector Indices

Performance indexes across sectors were mixed, as the NGX Insurance and Energy closed 0.79% and 0.09% higher respectively, while the NGX Consumer goods led the decliners after losing 0.41%, followed by Banking and Industrial goods with 0.36% and 0.14%.

Market breadth was negative, with losers outpacing gainers in the ratio of 22:13; just as activities in volume and value terms were down, after stockbrokers traded 151.94m shares worth N2.16bn, with volume driven by trades in GTCO, UBA, UACN, Accesscorp and Zenith Bank.

Multiverse and Cornerstone Insurance were the best-performing stocks after gaining 9.55% and 9.09%, closing at N1.95 and N0.72 per share respectively on market forces. On the flip side, International Breweries and Caverton lost 9.17% and 8.80% respectively, closing at N4.95 and N1.14 per share, purely on profit taking.


Market Outlook

We expect cautious and mixed trading as players reacts to rate hike in the midst of earnings expectation and interim dividend. We note also the flow of funds into the fixed income segment on the rate hike by the CBN, as sector rotation persists. Analysts are also on the lookout for Q2 GDP and flow of funds amid oil prices oscillation. Also, the market continues to interpret the rising inflation in relation to 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.

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Ambrose Omordion

CRO|Investdata Consulting Ltd

Tel: 08028164085, 08179547605