Cautious Trading Yet, Amidst Bargain Hunting, Portfolio Realignments On H1 Earnings Flow

Market Update for July 13

Trading activities on the NGX Exchange resumed at the midweek on selloffs and profit-taking after the two-day holiday to celebrate the Muslim Salah festival, in the midst of increased notification of board meetings, and closed period by listed companies ahead of their half-year earnings reports. This has kicked off quietly with mortgage banks presenting their results, which were impressive but yet to reflect on their share prices and the market.

The short trading week started on a negative note, and a pullback that creates ‘buy’ opportunities for discerning investors as rising inflation across the globe and rates hikes signal a high possibility of another recession. 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, just as all eyes are on economic data and corporate earnings.

The bear at the end midweek’s trading extended its run for a second consecutive session on a low traded volume and negative market breadth, while the short supply in the market indicates that players are on the sidelines, despite the market entering again into the decline phase.

The first half of 2022 has been stable for the bulls, while the second half just started on a see-saw movement that reflects the wait-and-see attitude of players ahead the Q2 financials news that will influence price movement. As such, 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.

As the market closed lower in the new and changing market environment, we look forward to a mixed rest of the month, as factors that kept the market on its oscillating trend remain unchanged. This is happening amidst the expectation of interim dividend paying corporate earnings, and others to be game-changers as we go further into the month with increasing political activities ahead of 2023 general elections and ongoing war between Russia and Ukraine.  Also, the US inflation rate 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 profitability using fundamental and technical analysis to run, join investdata live sessions at noon every trading day “and 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 selling sentiment witnessed since the beginning of the week, it is time to go shopping for undervalued stocks, sectors and the next inhe sider playing opportunity.”

Technically, the NGX index action has slipped on the daily time frame, supported by ‘selloff’ in medium cap stocks ahead of earnings report. 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 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 in the international market, trading at $98.20 per barrel, after COVID-19 resurfaced again in some China provinces that led to yet another restriction, amid worries over the weakening demand on increasing fear of a recession, as economic data are pointing to deflation or recession.  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 NGX index action is currently trading 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 spotted around 51,191.27bps. Should the index break this point, the next visible support is 51,012.75bps.

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, midweek’s trading opened slightly on the upside and oscillated for the rest of the session before pulling back on profit-taking and selloffs in medium cap stocks, a situation that pushed the NGX’s index to an intraday low of 51,390.25bps from its highs of 51,584.83ps before closing below its opening points at 51,390.25bps.

Market technicals were negative and mixed, with higher volume traded than the previous day in the midst of breadth favoring bears on a mixed sentiment as revealed by Investdata’s Sentiments Report showing 78% buy position and 22% sell volume. The total transaction volume index stood at 0.79 points, just as momentum behind the day’s performance was relatively weak as Money Flow Index is looking down at 40.70pts, from the previous day’s 41.17pts, indicating that funds left the market.

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Index and Market Caps

At the end of Wednesday’s trading, the benchmark NGX All-Share Index shed 167.54bps, closing at 51,390.25bps, after opening at 51,557.41bps, representing a 0.32% decline. Similarly, market capitalization fell by N90bn, closing at N27.71tr, from the previous day’s N27.80tr, which also represented a 0.32% value loss.

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Midweek’s downturn was driven by selloffs in BUA Cement, Accesscorp, UBA, UBN, Nahco, Mansard, Oando, Eterna, Wena Bank, Fidelity Bank, Jaiz Bank and UPDC, among others. This impacted mildly on Year-To-Date gain, as it dropped to 20.31%, while market capitalization growth dropped to N4.55tr YTD, representing a 24.37% rise over the opening level for the year.

Mixed Sector Indices

Performance indexes across sectors were mixed, as the NGX Insurance and Energy closed 2.96% and 0.04% lower respective, while the NGX Industrial Goods led the advancers after chalking 0.31%, followed by Banking with 0.05%. As Consumer goods closed flat.

Market breadth was negative, as losers outnumbered gainers in the ratio of 25:11; just as activities in volume and value terms were up, after players exchanged 198.82m shares worth N2.18bn, with volume driven by trades in GTCO, Japaul Gold, UBA, Jaiz Bank and International Breweries.

Computer Warehouse Group and Caverton Offshore were the best-performing stocks after gaining 10% and 9.84%, closing at N0.88 and N1.34 per share respectively on market forces. On the flip side, Multiverse and Redstar Express lost 10% and 9.82% respectively, closing at N1.89 and N2.48 per share, on selloffs and profit taking.


Market Outlook

We expect cautious trading in the midst of bargain hunting and portfolio reshuffling, 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 June consumer price index to guide investment decision 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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