Cautious Trading Still, Amid Portfolio Reshuffling, Ahead Of H1 Reports, Interim Dividend Stocks

Market Update for July 5

The side-side pressure continued on the NGX Exchange on Tuesday in the midst of mixed sentiments short-living the ranging market and bullish mood of players since the beginning of the week, thereby extending the bear transition for a second consecutive sessions on above average traded volume and positive market breadth. All eyes are on the expected half-year earnings reporting season, that kicked off with Infinity Trust Mortgage Bank presenting its Q2 scorecard during the day’s trading with impressive top and bottom lines that translated to earnings per share of 13 kobo, up from 6 kobo posted in 2021.

As the market entered the decline phase at the end of Tuesday’s session in this new and changing market environment, we look forward to a mixed July, as factors that kept the market on its oscillating trend remain unchanged. This is happening amidst expectation of interim dividend paying corporate earnings and others to be game changers as we go into the month with increasing political activities ahead of 2023 general elections.

To navigate the month profitability using fundamental and technical analysis to run, join investdata live sessions at noon every trading day “as 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 selling sentiment witnessed at the close of Monday trading, it is time to go shopping for undervalued stocks, sectors and the next insider playing opportunity.”

Technically, the NGX index action has pulled back to confirm the decline phase on a daily time frame, supported by selloffs in blue chip companies ahead of financial news. The daily index and price actions as we go into the month 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 mean 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 prices pulled back again despite rebounding slightly in the international market to trade at $104.80 per barrel, after the west rushed to curb Russian oil revenue without increasing prices, even amidst fear that oil markets could face a doomsday scenario this week or beyond, if OPEC has enough capacity to avoid supply problem as long as the ongoing Russia-Ukraine war persists. Also, the G7 nations plan to cap price Russian oil, as these chronic high energy prices are killing the global economy, heightening inflationary pressures across the globe on a weak economic outlook, thereby influencing monetary policies of central banks as they move to checkmate the impacts of the Russia-Ukraine conflict on the global economy to avoid economic recession. The nation’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 distance time as institutional investors balance their portfolios.

Technically, the NGX index action has confirmed the decline phase of the market, as it trades below the ‘T-Line’ and above the 50-day moving average, with the market remaining strong, despite the correction. The strong support level has been within the 50,000 basis points region, while volatility persists and correction towards the next breakdown is sported around 51,591.27bps. Should the index break this point, the next visible support is 51,423.75bps.

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, the day’s trading opened slightly on the downside and it was sustained throughout the session on profit-taking and selloffs in manufacturing stocks, a situation that pushed the NGX’s index to an intraday low of 51,571.37bps from its highs of 51,807.97ps before closing below its opening points at 51,586.50bps.

Market technicals were negative and mixed, as volume traded was higher than the previous day in the midst of positive breadth on a selling sentiment as revealed by Investdata’s Sentiments Report showing 94% sell position and 6% buy volume. The total transaction volume index stood at 0.85 points, just as momentum behind the day’s performance was relatively weak as Money Flow Index is looking down at 34.25pts, from the previous day’s 34.71pts, indicating that funds exit the market.

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Index and Market Caps

NGX All-Share index at the end of Tuesday trading shed 204.95bps, closing at 51,586.50bps, after opening at 51,791.45bps, representing a 0.040% decline. Similarly, market capitalization fell by N110.49tr, closing at N27.81tr, from the previous day’s N27.92tr, which also represented a 0.40 depreciation in % value.

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Tuesday’s downturn was driven by selloffs in BUA Foods, CAP, NASCON, GSK, FBNH, International Breweries, and United Capital, among others. This impacted negatively on Year-To-Date gain, dragging it to 20.78%, while market capitalization growth dropped to N5.48tr YTD, representing a 24.73% rise over the opening level for the year.

Bearish Sector Indices

Performance indexes across sectors were down, except for the NGX Industrial Goods that closed marginally higher by 0.01%, while the NGX Consumer goods   led the decliners after losing 0.58%, followed by Banking and Insurance with 0.53% and 0.48% respectively.

Market breadth turned positive, as gainers outnumbered losers in the ratio of 23:16; just as activities in volume and value terms were mixed, after investors exchanged 234.61m shares worth N2.57bn, with volume driven by trades in CAP. GTCO, UBA, Transcorp and Sterling Bank.

Redstar Express and John HOLT were the best-performing stocks after gaining 10% and 9.76% while closing at N2.75 and N0.90 per share respectively on market forces. On the flip side, International Breweries and Consolidated Hallmark Insurance Plc lost 9.52% and 8% respectively, closing at N5.70 and N0.69 per share, on profit taking and selloffs.

Market Outlook

We expect cautious trading in the midst of portfolio reshuffling to continue, ahead of the interim dividend season and second-half of the year, while Investors digest the March audited accounts released. We note also the flow of funds into the fixed income segment on the rate hike by the CBN, as sector rotation persists and players digest the macro-economic data and Q4 unaudited earnings released so far. Analysts are also on the lookout for the inflation rate of 17.71% to support recovery in the new month 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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