Expect Bullish Trend, As Investors React To Untamed Inflation, Realign Portfolios Ahead Of Q2 Earnings

Market Update for the Week Ended June 14 and Outlook for  June 19-21

Trading on the Nigerian Exchange in the second week of June closed positive, halting previous week’s loss on the back of increased buying interests across the major sectors of the market in the midst of changing market fundamentals and dynamics. The benchmark NGX All-Share index, therefore, closed higher for the first time in June amid portfolio rebalancing in the face of mixed macroeconomic indicators especially the inflation data in the month of May as it hit another new high at 33.95% year-on-year, despite slowing down month-on-month. This is happening as the end of the quarter and first half of the year approaches ahead of second quarter earnings reporting season.

The seeming changes and improving market fundamentals, added to the combination of the earnings season’s onset, interim dividend declarations, as well as the unfolding market dynamics all offer market players insights into what to expect from different sectors of NGX. The Q1 numbers and economic data released so far reveal the strength and upside potentials of service providers such as banks, insurance, and others in the aviation industry, healthcare, energy, and agribusiness, among others.

Despite the rising economic headwinds being witnessed today, amid the ongoing economic reforms of the government and relatively stability in the foreign exchange market are combining to boost confidence among local investors. It is also attracting foreign players in the face of low valuation and positive market sentiment as revealed by the Money Flow Index on the daily and weekly time frame.

The benchmark NGX All-Share index extended its recovery and uptrend, heading towards the 100,000 psychological line again. A breakout will  form a double top on the daily chart, following which market participants are fashioning strategies to navigate this volatile market through  portfolio diversification, besides hedging strategies and sector rotation. This is just as traders are exploring avenues to mitigate the impact of higher yields in the alternative investment windows. In such market condition, investors and traders should be on the look out for market dynamics, while embracing a diversified approach, even as players can weather the correction and seize opportunities amid the rebound.

According to a breakdown of the Consumer Price Index report for the month of May released by the National Bureau of Statistics, Nigeria’s inflation closed at 33.95%, which indicated a modest growth of 26bps  from 33.69% in April. This reflected the continued increase in prices of goods and services, just as food inflation for the moth jumped to 40.66% on a year-on-year basis, when compared with 24.82% in May 2023. However, inflation fell on a monthly basis to 2.28% in May against 2.5% in April 2024. This can be attributed to the onset of the harvest season, as well as the base year effect on the numbers, as price of food items remain high in the market.  The moderation month-on-month for a third successive month is a good sign to watch ahead of the expected wage hike in Q3 as labour and government continue their negotiations on a national minimum wage.

Technically, the market has rebounded on daily  and weekly chart and signaling continuation of trend or revesal that needs confirmation as trading opens at midweek after the holdays. Sentiment report for the period revealed buying pressure of 100% and MFI reads 51.28 points looking up on a weekly chart. Trading above the T line on a daily and  weekly time frame to reflect  positive momentum. The positive outing  and market internal for the period occurred in the midst of buying interest and position taking in undervalue stocks by investors  and bargain hunters  took advantage of pullbacks to buy into fundamentally sound  companies with high yield, strong earnings power and  low valuation. We note that the ongoing government reforms are yet to put the economy on the path of recovery, or progress due to the continued mismatch of policies, and even somersault altogether in some cases.

The global stock markets witnessed a mixed performance on expected rate cuts by many central banks of the world having the policy decision meeting this week. The time to relapse rates are here for economies of the world to breathout in the midst of continued geopolitical tensions here and there threatening many markets, as commodities prices continued to oscilates.  In the new week, the expected statements from federal reserve officials on cooking inflation and rate cut this year.

To navigate the rest of Q2 market volatility and its mixed outlook profitably using fundamental and technical analyses to run, join Investdata’s Live Sessions at noon every Mondays, Wednesdays and Fridays. Also, get investdata’s 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 corrections and pullbacks to continue the markdown phase. As volume of transaction witnessed within the week remain low, it is time to go shopping for undervalued stocks, sector rotation and the next insider dealing opportunity.

Oil price during week oscillated to recorded weekly gain, as it opened on Tuesday to  trade at $84.34per barrel following stronger demand outlook and investors confidence  that OPEC producers could stop the plans to raise supplies  from Q4 this year. As rising geopolitical tensions threats supply, coupled with war in Ukraine and Russia disrupting  in oil output in the face of osculating price. The up and down movement of oil price has continues to drive volatility across different investment windows and inflation again.

Movement Of NGXASI

The NGX recorded a bullish performance in the week under review, with the composite NGX All-Share index inching up in three sessions, and sliding once during the short week, owing to the celebration of the June 12 holiday to mark the nation’s democracy day. There was buying interest in the face of expected macro-economic  dynamics and portfolio repositioning. The share price of Custodian Investment and Industrial & Medical Gases were adjusted for 65 kobo and 50 kobo dividend  respectively declared by their directors.

The week’s trading closed positive on the first trading day, extending the previous week’s gains with the index  closing 0.58% higher on Monday, a trend that was short lived on Tuesday as the index slipped by 0.16% on profit taking in blue chip stock. Midweek was the public holiday to celebrate the nation’s democracy, and on Thursday and Friday, the index was up by 0.20% and 0.09% respectively, amid thre increased buying interests across major sectors. This brought the week’s  total  gain  to 0.71%, against the previous week’s 0.08% red position.

Specifically, the NGX All-Share Index gained 704.15bps, closing at 99,925.29bps, from previous week’s 99,221.14bps closing level, after touching an intra-week high of 99,929.39bps from a lows of 99,221.14bps. Market capitalisation also rose by  N400 billion to N56.53 tr, representing a 0.71% value gain. Despite price adjustment in the shares of Custodian and Industrial Medical Gases.

The top advancers’ table  for the week was dominated by highly priced stocks and low cap companies in the midst of position taking and accumulation, as more stocks appreciated in value during the period. Also notable was the fact that market players are still trading with caution, even when taking position and carrying out sector rotation  ahead of quarter end  window dressing and earnings reporting season in July, as events unfolds in the government reform process.

Market technicals for the period were positive and strong  as gainers   outnumbered losers  in the ratio of 51:24 on a buying pressure  as revealed by investdata sentiment report showing  100% ‘buy’ volume and 0% sell position. Money Flow Index was looking up at 51.28 points  from the previous week’s 50.45 points, an indication that funds entered the market on a weekly time frame.

Technical View

The NGX index’s action formed a reversal bullish engulfing candlestick and double top chart pattern that signaled continuation of trend or reversal, which needs to be confirmed in the new week, as more march year end  financial reports flow into the market in the face of  changing momentum and sentiment, especially from the financial service providers and oil companies. The buying  sentiment for the period in the face of low valuation and mixed corporate earnings, even when higher yields in the alternative market still remain below inflation rate.

Already, the index  has entered a markup phase on a daily chart. We note that 97,612.51bps is a strong support level on the daily and weekly time frame, even as the index on the weekly time frame is  rallying. The market is at a critical zone as all eyes are on the more financials  to support market fundamentals and attract inflow again. Also, we note that investors are taking long-term positions in the face of dividend expectations and volatility.

We also note that buyers are in control, as revealed by the  buying sentiment and positive market breadth, as the index is trading below the T line and  above 50-Day Moving Average on the weekly chart.

Bullish Sectoral Indices

The sectoral indexes of the week were in green, as NGX Oil/Gas led the advancers after gaining 5.28% followed by Banking, Insurance, Consumer  and Industrial Goods  with 3.63%, 3.42%, 1.05%  and 0.27% respectively.

Activities  in volume and value were up  as players exchanged 2.63bn shares worth N43.65bn, compared to previous week’s 1.70bn units valued at N30.50bn. Volume was driven by Financial Services, Consumer goods and Energy industry,  boosted specifically by  Fidelity Bank, Accesscorp, Zenith Bank, Oando and Transcorp.

Cutix  and Regency Insurance  were the best performing stocks for the week, after gaining 28.21% and  23.68% respectively, closing at N4.00 and N0.47 per share on market forces and  sentiment. On the flip side, Daarcomm  and C & I Leasing   lost 17.46% and 14.72% respectively, at N0.52 and N2.55per share, on selloffs.

Outlook for the week

We expect the mixed sentiment and bullish trend to continue as investors react to CPI of 33.95% in the face of portfolio rebalancing and expected earnings reports, despite the rising inflation. Bargain hunters are also expected to take advantage of rebound to buy into value stocks. As investors are watching with rapt attention.

However, retracement to the 94,000bps level and below is possible on correction as global and domestic events unfold.

Ambrose Omordion

CRO|Investdata Consulting Ltd




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