Market Roundup for November
It was a volatile and bullish November amidst improved buying interests even as the Nigerian Exchange’s benchmark All-Share index gained 8.72%, making it the best monthly performance since May 2022. The index, therefore, has halted the correction and bearish trend even if on a low traded volume despite being higher than that of October, signaling an uptrend and a relative return of strength to the market.
Investors saw opportunities in the low equity prices arising from the losses of the past few months, and the resultant higher dividend yields, and ahead of year-end seasonality. This also followed demand for highly priced stocks that had suffered losses before now, especially telecommunication and industrial goods stocks. Particularly, there were position taking in the shares of Airtel, MTNN, Dangote Cement, BUA Cement and others, which combined to pushed the market up.
Despite, the mixed economic data, rising inflation and rate hike by the Central Bank of Nigeria (CBN), the better-than-expected 2022Q3 corporate earnings reports, shorter time frame to achieve double-digit returns for fixed income market instruments and bargain hunting, investors positioned for higher dividend yields in equity assets. The NGX’s benchmark index chalked all of 8.72%, almost recovering all of the 10.58% lost in the month of October.
The positive sentiment and buying pressure followed the low price to earnings ratio after market players had done their analysis of the nine-month earnings reporting, as traders cashed out profit in the midst of better than expected corporate earnings from quoted companies with December financial year, which supported market fundamentals. Also noteworthy was the decline in month-on-month consumer price index for three consecutive months, despite headline inflation still pointing northward for the seventh successive month, and the predictable outcome of the Monetary Policy Committee (MPC) meeting that remained in line with market expectations. Within the period, the benchmark Monetary Policy Rate was adjusted upward to 16.5%, representing 500 basis points increase since May 2022, as other policy instruments remained unchanged, even as economic activities pointed to a contraction, judging by the latest Q3 GDP slower growth of 2.25% indicating a further weakening of the economy. There was crisis in the exchange market with the continued devaluation of the Naira ahead of the deadline for the redistribution of the new Naira notes by the apex bank as part of efforts to control inflation and money outside the banking system.
Meanwhile, the month of December, being the last in the quarter and year, will witness new position taking towards the 2022 audited financials expectedly in the first quarter of 2023, amid year-end window dressing, and the Santa Claus rally, especially the dividend paying stocks. This is as institutional investors try to rotate their positions, considering the fact that the fixed income market tenor and that of equity despite the seeming high yield attractive as a result of interest rate hike.
Note that despite the seeming ongoing uncertainty associated with 2023 general elections and oscillating oil price in the international landscape, market fundamentals remain strong as corporate earnings of many companies reveal the possibility of dividend growth. Already, more companies had earlier paid interim dividends this year, a situation that should give investors an insight of what to expect at the end of this financial year.
The nation’s 21.09% inflation rate, 2.25% Q3 GDP growth that came below 3.54% Q2 reflect the global challenges and impact of policy mismatch between the fiscal and monetary authorities, just as the Purchasing Managers’ Index (PMI) will likely remain above 52 points in November, as against 53.7 points in October. Also noteworthy is the fact that flood had affected farmers, despite the ongoing harvest season that reflected slightly in the latest inflation figure.
The strong earnings of many companies and bright prospects of some sectors have showed the grossly undervalued state of Nigerian stocks, even as the relative subsisting high inflation rate and fixed income yield direction supports the equity market. These are despite the low inflow from foreign investors and exchange market problems as the Central Bank of Nigeria moves to address foreign exchange flows.
We believe effective coordination will reduce policy mismatch and summersaults, while promoting realistic economic reforms, structural adjustments, effective disbursement of capital project funds and real change in the implementation style of the government. These are necessary to hasten economic recovery by enhancing productivity and national output needed to support growth.
The mixed trend and buying interest noticed in November was obvious in the 22 trading sessions of the month, of which the market closed positive in 14 and down in just eight days, hating the previous month’s negative outlook. It also boosted the year-to-date position, lifting the NGXASI to 11.57%, owing to buying interests in high cap stocks, positive reactions to earnings and high yields in the equity space. Despite the economic challenges, high yield in fixed income space and others, many stocks remain attractive, offering high margins of safety and upside potentials.
Meanwhile, during the month under review, the NGXASI gained 3,820.96 basis points, closing at 47,660.04bps, after touching a high of 47,662.71bps and a low of 43,393.20bps, from the 43,839.08bps it opened for the month. This came with a positive sentiment that impacted prices of high cap stocks, thereby supporting the uptrend witnessed during the month especially the, banking, industrial and telecoms stocks that appreciated in prices.
The buying volume of total transactions for the month was 100%, while selling position was 0%, and volume index for the period was 0.62; just as market capitalisation for the month gained N2.08 trillion, closing at N25.96tr, from an opening value of N23.88 trillion, representing a 8.71% appreciation in investors’ portfolios.
The market sustained a positive sentiment and uptrend for stocks, especially with strong company’s fundamentals and growth prospect, expectation of seasonal trends and investors positioning in stocks that have strong yields to hedge against inflation, even in the midst of Naira depreciation against other currencies.
Traded volume for the month was up by 40.65% to 3.91bn shares, from 2.78bn units in October, even as market breadth was flat, with decliners equaling advancers in the ratio of 44:44. This reflected on the major sectorial indices that closed higher for the period under review.
The sectoral performance indexes closed mixed as shown below, with the NGX Industrial, Premium, NGX 30, Main Broad and Banking driving the market, after gaining 13.17%, 11.67%, 8.57%, 6.21%and 4.94% respectively. The industrial goods sector broke out during the period, impacting the market positively, a situation expected to continue in the new month, given the sector’s low price attraction and proposed 10% share buyback corporate action. The Oil/Gas led the decliners after losing 8.44%, followed by Consumers goods with 4.91%.
November’s best performing stocks were Unity Bank, which gained 23.91% on market sentiment; followed by NEM Insurance on its impressive Q3 numbers and small share in issue after its share price appreciated by 20%. Next was NGXGroup that gained 18.98%. Among the month’s top gainers were: Dangote Cement, 18.96%; UACN, 17.32%; AXA Mansard, 16.56%; FBNH, 14.29%; and THOMASWY, 14.29%.
The worst performing stocks, on the other hand, were SCOA, which lost 39.43% of its opening price for the month; while Guinness shed 24% on unimpressive Q1 earnings performance; Sunni Assurance, 22.86%; and Nestle, 20.67%. RT Briscoe shed 18.18% due to market forces, just as Julius Berger lost 18.15%; followed by Custodian Investment, 17.69%; and Royal Exchange Assurance, 16% on the back of profit taking.
Technical Analysis of November market
NSEASI MONTHLY TIME FRAME
The bargain hunting and positive sentiments have pushed the market into an uptrend and bull rally, as seen in the NGX composite index which broke out various resistance levels and psychological lines of 44,000 to 47,000 level, after touching strong support level of 43,321 .70. It trades above Fibonacci retracement line of 100% on a low traded volume to form a double top chart pattern on a monthly time-frame. This clearly signals of an impending price rally, or profit taking, before any retracement in the new month.
The descending triangle chart pattern also supports continuation of current trend or pullback depending on market forces and news in December. Investors and traders should trade cautiously throughout the new month and beyond, by having good entry and exit strategies at all time.
We expect a bull run, as traders and investors interpret happenings globally, fixed income yield environment, earningsreport and economic data, coupled with portfolio repositioning ahead of the December seasonal trends and expectations in the midst financial market reset. This is given that oil price in the international market has continued tom oscillates and smart money are trying to rotate their positions as dividend yields are attractive at this point.
Meanwhile, given the recent bull-run, profit taking is evitable, being a regular behaviour of stock markets. Any price correction at this phase of market recovery will support the upside potentials. This is especially as many fundamentally sound stocks remain underpriced, while the dividend yields of major blue-chips continue to look attractive, despite the recent rally.
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