Expect Continued Mixed Sentiments On Reactions To Earnings Inflow, Low Prices Attractions

Market Update for October 27

Thursday’s trading had mixed sentiments amidst the influx of corporate earnings with impressive numbers, regardless of few companies that posted disappointing results. The continued selloffs in telecommunication giant- Airtel Africa weighed down the market’s benchmark NGX All-Share Index as it closed lower on an above average trade volume and positive market breadth.

The market halted five consecutive sessions of bull-run on profit taking in high and low priced stocks in some sectors of the market, as portfolio and sector rotation persist on quarterly earnings released so far to the market. Also, buying interests in banking stocks increased on impressive and strong Q3 numbers that support higher payout and yields ahead of full year earnings from the sector in 2023. This was despite the pullback of the NGXASI after yesterday’s trading, as the earnings reporting season entered its peak with more impressive corporate earnings hitting the market to reverse Thursday’s correction on expected renew buying interest in blue chips across some major sectors of the market as trading opens today.

The recovery on the better than expected corporate numbers released so far to the market, especially from the banking, consumer goods and energy sectors are likely to continue as more funds flow to the market. However, it is vitally important to look at this strength within the context of other data on the charts, focusing on price actions, or structure and momentum, with the influx of companies’ quarterly earnings are expected to drive positive sentiment as portfolio repositioning continues.

Some of the earnings reports released so far seem to have disconnected from economic reality, amid increasing headwinds in the nation and the global are signaling recession, the fundamentals do not match the performance of the financial markets. It does seem that fear is outweighing the available facts, and this fear has been introduced into the market by the Central Bank of Nigeria (CBN) in the last five months with the hiking of rates that is now propelling the flow of funds around the market. The two biggest events in the market between this last quarter of 2022 and first quarter of next year are the MPC meetings in November, January and March, and of course, and outcomes of the much talked about general election.

As more corporate numbers hit the market, the question on the lips of discerning investors is whether or not these Q3 earnings could help the NGX maintain this positive momentum, as reactions are likely to extend to three or four weeks amid the wave of surprises and disappointments that comes with earnings season. Over the next couple of days and weeks, most major companies will provide the market with updates on their scorecards and outlook for the rest of the year. It gives me a chance to help empower the do it yourself traders and investors, by identifying deep value stocks owned and controlled by billionaire investors. Just by following my approach of combing fundamentals and technicals in taking investment decision.

At the current market situation, understanding the big picture and the outlook of the expected financial reports of the companies in this changing business and economic environment across the globe and locally will help market players reposition their portfolios on the strength of the 11 sectors of the market performance and sentiment rank from strongest to weakest right now. Meanwhile, bargain hunters are capitalizing on the persisting low valuation and divergence from real value in expectation of closing gap in the future dates for profit and gains. The power of perception or sentiments cannot be overemphasized in stock trading or investing, seeing the impact of aggressive hawkish monetary policy across the globe, with investors reacting to different news and statements. So keep your eyes on the charts.

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The oscillation in oil price continued as it trades at $95.75, in the midst of planned Russian oil price cap between $63 and $64 per barrel.  Also, the fear of global recession and supply tighten due to Russia Ukraine war that are getting worst. Coupled with the impact of 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, the day’s trading started slightly in the upside and was sustained till afternoon before selloff in Airtel and Geregu reversed the positive trend, a situation that pushed the NGX’s index to an intraday low of 44,615.15bps from its highs of 44,883.14bps before closing below its opening level at 44,625.18bps.

Market technicals were positive and weak, with higher volume of trade than the previous session in the midst of breadth favoring the bulls on a selling sentiment as revealed by Investdata’s Sentiments Report showing 4% buy position and 96% sell volume. The total transaction volume index stood at 1.00points, just as momentum behind the day’s performance was weak as Money Flow Index is looking flat at 40.58pts, from the previous day’s 40.59pts, indicating that funds entered the market, despite closing lower

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Index and Market Caps

The composite NGX All-Share Index, at the close Thursday trading shed 210.43bps, closing at 44.625.18 basis points, after opening at 44,859.78bps, representing a 0.52%up, just as market capitalization fell by N127.78bn closing at N24.31tr, from the previous day’s N24.43tr, which also represented a 0.52% depreciation in value.

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Thursday’s downturn was driven by selloffs and profit taking in the shares of Airtel, Geregu Power, GTCO, Africa Prudential, Linkage, Pharma Deko, Aiico, and Wapic, among others, which impacted mildly on Year-To-Date gain, increasing it to 4.47%. Market capitalization gain YTD increase to N1.30bn, representing a 9.13% rise over the opening level for the year.

 Mixed Sector Indices

Sectorial performance indexes were mixed, as the NGX Banking and Consumer goods closed 1.11% and 0.01% higher respectively, while NGX Insurance led the decliners after losing 0.98%, just as Industrial goods and Energy were flat.

Market breadth turned positive with gainers and losers in the ratio of 12:9; just as activities s in volume and value were mixed, as stockbrokers transacted 150.97 shares worth N1.55bn. Volume was driven by trades in Mutual Benefits Assurance, Pharma Deko, Transcorp, Fidelity Bank and Accesscorp.

Regency Insurance and Sovereign Trust Insurance were the best-performing stocks, gaining 8.70% and 8.00% each, closing at N0.25 and N0.27 per share respectively on market forces. On the flip side, Pharmdeko and Linkage Assurance lost 9.78% and 9.30%, closing at N1.85 and N0.39 per share, purely on selloffs.

Market Outlook

We expect mixed sentiments to continue on reactions to more corporate earnings that are being released in the midst of bargain hunting and election uncertainty, as investors are taking advantage of the low prices to reposition ahead of more 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