Cautious Trading Lingers On NGX, As Economic Tailwind Mask Impact Of Impressive Earnings

Market Update for July 27

The Nigerian Exchange remained at a crossroads of risks and opportunities at the end of midweek’s trading as the bears remained in control for the seventh successive session, with telecommunication giant- MTNN, as well as Zenith Bank, GTCO, and other blue-chips suffered sharp price drops at the centre of an earnings reporting season. We note that many of the corporate numbers released so far have been impressive, except for a few low and medium cap companies that posted mixed numbers and disappointing scorecards.

We note also that ahead of next year’s general elections in the country, the prevailing insecurity and economic uncertainties as seen through the rising inflation and interest rates, in the face of naira devaluation and the soaring national debt are sources of major concerns among equity and fixed income investors at this moment. In all these, there are selloffs in the equity market, hence the need for investors to navigate the market now that many stocks look cheap in the strength of impressive earnings and relatively low prices. The market cycle of bear situation and market bottom in the face of technical pattern of oversold market or individual stocks signal that a reversal is underway as bargain hunters take advantage of pullbacks to reposition their portfolios

Price corrections on the NGX make the market cheap, as revealed by the low Price Earnings Ratio and post-Covid impressive earnings performance of listed companies that had supported the NGX rally and stability over the past three years, despite the low participation of foreign portfolio investors. These strong earnings have continued to support the market this year, just as the corporate numbers released so far have been impressive, despite the harsh economic environment, due to the high cost of production, rising inflation and high interest rate occasioned by the war between Russia and Ukraine, and the mismatch in economic policies by the government. Also, the market had further broken down the 51,000 mark to trade below the ‘T line and 20-day moving average, to attract bargain hunters as sector rotation and portfolio rebalancing increased amidst the inflow of more corporate earnings in the market.

Scorecards presented by Cadbury, NEM Insurance, Seplat, Airtel Africa, Transcorp, Eterna and others were impressive, revealing growth in top and bottom lines, while Seplat announced interim dividend for its shareholders. The market is yet to react to these numbers, reflecting the low liquidity in the market and in the system due to the high interest rate, just as more scorecards are expected. Indeed, the days of surprises and disappointing earnings are here. It is therefore time to use technical tools, 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 reversal is underway depending on the earnings power.

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 its decline phase amid selloffs in high cap stocks and cautious trading activities heightened on increase in interest rate, despite the bull trend on 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.

Oil price continued to oscillates as it trades at $105.40 per barrel in the international market, on the fear of recession as central banks across globe continue to hike rate to fight rising inflation, 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 the 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.

Meanwhile, midweek’s trading opened slightly on the downside and was sustained for the rest of the trading session on selloffs in blue-chip stocks, a situation that pushed the NGX’s index to an intraday low of 50, 163.40bps from its highs of 50,447.87.60ps before closing below its opening points at 50,188.55bps.

Market technicals were negative and mixed, with higher volume traded than the previous day in the midst of breadth favoring bears on selling sentiment as revealed by Investdata’s Sentiments Report showing 9% buy position and 91% sell volume. The total transaction volume index stood at 0.97 points, just as momentum behind the day’s performance was weak as Money Flow Index is looking up at 18.74pts, from the previous day’s 18.36pts, indicating that funds entering the market remained flat.

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Index and Market Caps

The benchmark NGX All-Share Index, at the end Wednesday’s trading shed 253.82bps, closing at 50,188.55bps, after opening at 50,442.37bps, representing a 0.50% decline. Similarly, market capitalization fell by N136.87bn, closing at N27.06tr, from the previous day’s N27.20tr, which also represented a 0.50% value loss.

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Wednesday’s downturn was driven by selloffs in shares of MTNN, Custodian Investment, United Capital, UPDC, UACN, UBA, Zenith Bank, GTCO, Cutix, Ardova and Accesscorp, among others. This impacted negatively on Year-To-Date gain, as it reduced to 17.49%, while market capitalization growth YTD fell slightly to N4.01tr YTD, a 21.98% rise over the opening level for the year.

Bearish Sector Indices

Performance indexes across sectors were down, except for the NGX Consumer goods that closed in green with 0.05%, while the NGX Banking led the decliners after losing 2.34%, followed by Insurance, Energy and Industrial goods and energy with 1.10%, 1.07% and 0.04% respectively.

Market breadth was negative, with losers outpacing gainers in the ratio of 34:3; just as activities in volume and value terms were up, after stockbrokers transacted 829.51m shares worth N4.11bn, with volume driven by trades in International Energy, Transcorp, GTCO, UBA and FBNH.

FCMB and Nascon were the best-performing stocks, gaining 3.33% and 0.91% respectively, closing at N3.10 and N11.10 per share respectively on impressive earnings and market forces. On the flip side, Custodian Investment and Jaiz Bank lost 10% each, closing at N6.30 and N0.72per share, purely on profit taking.


Market Outlook

We expect a mixed trend on a strong support level of Fibonacci retracement of 61.0%, as investors react to the impressive earnings released so far and the fear of economic risk, as more results are expected in interim dividend season. 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

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