Cautious Trading Still, Amid Bargain Hunting On Low Prices, Repositioning Ahead Q3 Earnings

Market Update for October 5

As the seeming downturn persists on the Nigerian Exchange at the midweek, reflecting the rising worries of many investors about another impending recession, there is need for economic managers and policy makers to ensuring there is no mismatch in economic policies, to check the continued free fall of the nation’s currency in the midst of high interest and inflation.

This has driven pessimism among market players ahead of major macroeconomic data, such as the Q3 earnings reporting season and expected last quarter seasonality, even as electioneering activities for 2023 general election is on the rise with the kickoff of party campaign that expected to be issue-based, considering the state of the nation’s economy and insecurity.

The NGX index’s action at the end of midweek’s trading extended it bear run for the second consecutive session, closing lower on low traded volume and negative market breadth in the midst of selling sentiment and weak momentum. This was despite the listing of Geregu Power Plc’s 2.5bn ordinary shares of 50 kobo at N100 each, which pushed the market cap up by N226.56bn, while the NGXASI dropped slightly by 0.09%. The market’s declining momentum reduced at midweek, amid the continued portfolio reshuffling and sector rotation ahead of the Q3 earnings reporting season. Also, more listed companies have continued to notify the exchange of their closed period and board meetings dates to consider and approve the financials for the quarter-ended September 30, 2022.

The power of perception or sentiment cannot be overemphasized in stock trading or investing, seeing the impact of expected slowdown in aggressive hawkish monetary policy across the globe, on stock prices in mature markets and others looking up since the beginning of the week and quarter. UK experience coming after World Bank and IMF had continued to warn the central banks to rethink and avoid pushing the global economy into recession. We see that is already happening in UK, China, Japan and others. It is time for the Nigerian central bank and its Monetary Policy Committee to have a rethink before things goes out of hand.

The low valuation of the NGX, high earnings and dividend yields on improved earnings released so far in the year, coupled with the expectation of third quarter corporate earnings to shape the market direction in the face of inflation hitting 17 years high above 20%, causing many players stay on the fence, waiting to confirm direction before jumping in, as outlook for the economy and the financial market remains unpredictable.

Despite the lingering high interest rates atmosphere, rising inflation and slowing industrial output as a result of policy changes and uncertainty around the globe, there are sectors, industries and individual stocks that are still seeing positive activities from traders and investors. There are stocks players should pay attention to, as the correction in the NGX index action create buying opportunity in some sectors and individual defensive stocks with high dividend high yield and positive earnings growth.

Market internals are revealing the hidden forces that work for both short and long-term traders to get into the best position and allow you to stay in them for maximum profit, despite the market rebounding or weaken further. The market’s internals that measure the forces behind the advancers and associated volume of the uptick or downtick. These two ratios tell you everything you need to know to predict future price movements. So, the volume pattern and index structure in recent sessions show position taking, while funds enter some stocks as revealed by money flow index which need to be confirmed, especially as negative sentiment supported the previous session candlestick formation.

In the current decline phase of the market, the decision of when to buy or sell individual stocks or an index, is always based on price actions and the money flow direction which combines price and volume. We only want to hold stocks that are increasing, or at least retaining their value, while avoiding equities that are on the decline, and the toolset to evaluate price action is technical analysis.

To navigate the rest of 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.”

Oil price continued its oscillation, as it rebounded powerfully to trade at $93.54 after OPEC output cut, in the midst of recession fear and supply tighten due to Russia Ukraine war. Despite the weak demand and fear of recession around the globe on hawkish monetary policy by central banks, just as China COVID-19 lockdown come to an end. The up and down movement of oil price also continues to drive volatility in the face of rising interest rates and inflation. Despite the bailout package of the Chinese government to simulate economic activates and stable employment, as well as that of Germany aimed at managing the energy crisis.

Meanwhile, Wednesday’s trading started slightly in the downside and it was sustained throughout the session, despite oscillating on panic selling and position taking in the newly listed power company and others, a situation that pushed the NGX’s index to intraday low of 48,818. 20bps from its highs of 48,919.32bps before closing below its opening level at 48,836.70bps.

Market technicals were negative and mixed, with a lower volume of shares traded than the previous day in the midst of breadth favoring the bears on a selling sentiment as revealed by Investdata’s Sentiments Report showing 18% buy position and 82% sell volume. The total transaction volume index stood at 0.76points, just as impetus behind the day’s performance was weak as Money Flow Index is looking up at 19.85pts, from the previous day’s 19.28pts, indicating that funds entered the market, despite closing lower.

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Index and Market Caps

At the close of midweek’s trading, the NGX All-Share Index slipped by 43.04bps, closing at 48,818.20bps, after opening at 48,879.74bps, representing a 0.09% drop, while  market capitalization was up by N227bn as a result of the listing of Geregu Power, closing at N26.60tr, from the previous day’s N26.37tr, which also represented a 0.86% appreciation  in value.

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Midweek’s downturn was driven by selloffs in PZ, NNFM, Cadbury, FCMN, WEMA Bank, and Africa Prudential among others, which impacted negatively on Year-To-Date gain, reducing it to 14.36%. Market capitalization gain YTD increase to N2.86tr, representing a 20.42% rise over the opening level for the year.

 Bearish Sector Indices

Sectorial performance indexes were mixed, with the NGX Insurance closing higher by 0.21%, while NGX Banking led decliners after losing 0.98%, followed by Energy and Consumer goods with 0.27% and 0.18% respectively, while NGX Industrial goods closed flat.

Market breadth remained negative, as losers outpaced gainers in the ratio of 22:13; just as activities in volume and value were up, with players trading 173.62.m shares worth N2.39bn. Volume was driven by trades in GTCO, Zenith Bank, UBA, NGXGroup and Chams.

Geregu Power and Multiverse were the best-performing stocks, gaining 10% and 9.88% respectively, closing at N110 and N4.45 per share respectively on market forces. On the flip side, Cadbury and NNFM lost 9.93% and 9.33% respectively, closing at N12.25 and N6.80 per share, purely on selloffs.

Market Outlook

We expect a mixed sentiment to continue on bargain hunting  taking advantage of low prices reposition in the market ahead Q3 corporate earnings. This is just as banking stocks are gaining attention, despite profit taking that makes the sector more attractive for income investors, while portfolio rebalancing continues on bargain hunting in the midst of the worsening sovereign risks.

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 focused on the lookout for August CPI and flow of funds amid oil prices oscillation.

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Ambrose Omordion

CRO|Investdata Consulting Ltd

Tel: 08028164085, 08179547605