Cautious Trading On NGX, Amidst Low Volume, As Pullbacks Offer Fresh Prospects

Market Update for November 18

Profit-taking and selloffs continued on the Nigerian Exchange Thursday as the benchmark index closed lower, thereby extending its loss for the second successive session on a low traded volume and negative breadth. Also, sectorial indexes recorded a mixed performance as players continue digesting the emerging positive macroeconomic data.

These positive economic data and better than expected corporate earnings are a plus for the market, notwithstanding the likely outcome of the Central Bank of Nigeria Monetary Policy Committee meeting next week, just as the nation’s GDP has maintained consistent recovery to reveal potentials in the different sectors of the economy as a guide to investors while positioning for the new year.

The National Bureau of Statistics (NBS) has released Nigeria’s Q3’21 GDP numbers, revealing a real GDP growth of 4.03%. The growth in the nation’s Q3’21 output largely reflected a sustained recovery in the non-oil sector, which grew 5.44% (versus a 2.51% contraction in Q3’20). In our view, the non-oil sector continues to benefit from a strong rebound in economic activities as COVID-19 worries abate, as demonstrated in the growth recorded in sectors such as Manufacturing (+4.29% vs -1.51% in Q3’20), Trade (11.90% vs -12.12% in Q3’20), Transportation (+20.61% vs -42.98% in Q3’20) and Real Estate (+2.32% vs -13.40% in Q3’20), which were battered by the pandemic in Q3’20.

However, the continued upturn in the non-oil sector contrasts with the persistent weakness in the oil sector, which contracted (-10.73%) for a sixth consecutive quarter, which we link to weaker domestic oil production, that continues to be hampered by the slowdown in drilling activities and pipeline sabotages. Specifically, we note that operational challenges in August 2021 led to a Force majeure on one of the country’s key oil export terminals – the Trans Forcados Pipeline (TFP)

Technically, despite the negative sentiment and slowdown in market recovery at this stage, the NGX index’s action remains strong, because the recent pullbacks have not wiped out Tuesday’s bullish candlestick, which is still within the rectangular channel. Momentum indicators for the day were bearish nonetheless, with ADX reading 62.67 and the money flow index looking down at 55.88 points on the daily chart. The continuation of this trend depends highly on the interplay of market forces as players continue digesting the just-released Q3 GDP and consumer price index for the month of October, while the direction of the yield in the fixed income market remains unclear.

Thursday’s trading started slightly on the downside, before oscillating to pullback on selloffs and profit-taking in blue chips. This situation pushed the NGX index to an intraday low of 43,285.03 basis points from its highs of 43,362.77bps before it closed below the opening figure at 43,286.97bps.

Market technicals for the session were weak and mixed as seen in the lower volume traded than the previous day in the midst of breadth that favoured the bears on a selling pressure as revealed by Investdata’s Sentiment Report showing 99% sell volume and 1% buy position. The total transaction volume index stood at 0.55 points, just as the impetus behind the day’s performance remains relatively strong, Money Flow Index looked down at 55.88 points, from the previous day’s 62.13 points, indicating that funds left the market.

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Index and Mkt Cap Movement

The composite index NGXASI, at the close of Thursday’strading, shed 63.93 basis points, at 43,286.97bps after opening at 43,349.90bps, representing a 0.15% drop, just as market capitalization fell by N49.22bn, closing at N22.58tr, from the opening value of N22.62tr, also representing 0.15% value loss.

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The day’s downturn resulted from selloffs in GTCO, Lafarge Africa, Oando, FBN Holdings, UBA, United Capital, and NGXGroup among others, which impacted negatively on Year-To-Date gain, reducing it to 7.49%. Market capitalization stood at N1.59tr YTD, representing a 7.25% growth from the year’s opening value.

Mixed Sector Indices

Sectoral performance indexes were mixed, as NGX Insurance and Consumer Goods closed higher by 0.59% and 0.14% respectively, while NGX Banking index led the decliners, losing 0.19%, followed by Energy and Industrial goods with 0.19% and 0.12% respectively.

Market breadth was negative as losers outnumbered gainers in the ratio of 23:12, while transactions in volume and value terms were down after stockbrokers had traded 210.55m shares worth N2.61bn, compared to the previous day’s 264.79m units valued at N6.68bn. Volume was boosted by trades in Sterling Bank, Etranzact, Transcorp, GTCO, and Jaiz Bank.

Vitafoam and Etranzact were the best-performing stocks, gaining 10% each, closing at N20.90 and N2.09per share respectively on full-year earnings expectation and market forces. On the flip side, Chams and Regency Insurance lost 8.70% and 7.5% respectively, closing at N0.21 and N0.37 per share, purely on profit-taking.

Market Outlook

Being the last trading day of the week ahead of Monday and Tuesday MPC meeting, in the midst of an unclear direction of yields in the fixed income market, as well as the upcoming FGN Bonds issuance, we expect equities to maintain the negative outing.  There is also the possibility of cautious trading and investing as low volume resurfaced with pullbacks that are creating new buy opportunities for players to jump into positions on the strength of the Q3 numbers. Also, candlestick formation and volume traded during the day’s trading revealed that buyers are in control, as the index rebounded. Also, we note that institutional players are not selling but positioning in blue-chip companies, as the pullback was on a light volume. It is equally noteworthy that this pullback at this level is for the accumulation of more positions ahead of year-end seasonality. Also, many stocks are trading within their buy ranges, a situation expected to attract more funds into the equity space, given the Dividend Yield capable of serving as a hedge against inflation.

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