Market Update for the Week Ended March 25 and Outlook for Mar 28-April 1
Trading activities on the Nigerian Exchange in the past week extended its negative sentiment at the peak of the earnings reporting season to enter the declining phase of the market cycle as sellers dominated trading on panic selling as the back of the ongoing war between Ukraine and Russia. The war has lasted over one month despite the bouquet of sanctions imposed on the aggressor- Russia, with the US striking a gas deal with the European Union to help wean the continent off Russian energy dependence. Also, central banks across the world continue to hike rates to checkmate the rising inflation, with inflation in matured economies already hitting new highs, thereby changing the global economy direction and expectations for 2022, even while COVID-19 remains potent.
The trading environment and conditions in the domestic market have changed on a low traded volume and mixed sentiments, suggesting that some investors are still taking profit in high cap stocks and blue-chips. This is amidst reactions to the audited full-year 2021 earnings reports remain mixed and below expectation despite the impressive numbers and high payouts of quoted companies that had submitted their financials. Meanwhile, this continued volatility may not be unexpected given the high level uncertainty and risks associated with pre-election years. Investors at this point are expected to change their investing strategies, considering the decision of members at the last Monetary Policy Commission meeting to hold all key monetary rates unchanged, so as not to deflate the mild recovery already noticed in the economy, amid the rising inflation and high cost of production due to high cost of energy related products likely to showdown the nation’s industrial productivity.
In all these, companies with strong fundamentals and growth prospects are going to outperform this market, despite the unstable market and economy in the days leading to the onset of the 2023 general election next February.
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Despite, the pullbacks witnessed during the week, the share prices of PZ Cussons, and NPF Microfinance, among others, hit new 52-week highs, as investors reacted to the strong numbers from one of the country’s oldest conglomerates.
Movement Of NGXASI
It was another bearish week on the NGX, as index action recorded three trading sessions of down market and two up days, thereby extending the negative outing for two consecutive weeks, after opening the week on a negative note, losing 0.05%, which was extension of previous Friday’s selloffs that lasted until Tuesday when the index fell by another 0.20%. The trend was halted at the midweek when the market gained 0.02% on renewed buying interests, but was short lived on Thursday as the NGX All-Share index lost 0.43% to breakdown the strong support and psychological line of 47,000 that ushered in the decline phase of the market after more than one month in a consolidation level, which was at the same time a distribution phase as high cap stocks suffered losses. However, the market tried to rebound on Friday, with the index closing flat at 0.01%. This brought the week’s total loss to 0.67%, compared to the previous week’s decline of 0.33%.
Specifically, the benchmark index recorded a 318.44 basis points loss, closing the week at 46,964.23bps, after touching an intra-week low of 46,931.38 points, and a high of 47,364.46bps. Recall that the week opened with the index at 47,282.67bps, just as market capitalisation fell by N172bn, closing at N25.31tr, from the previous week’s N25.48tr, which also represented a 0.67% depreciation in value.
Despite the pullback during week, low cap stocks dominated the top advancers table, as market news and dividend expectations continued to drive demand for some stocks, as players took advantage of the ongoing corrections to buy into the better-than-expected numbers that had hit the market.
We note that economic data and corporate earnings released during the week did not impact the NGX index, with more selling activities than buying, a situation that was reflected in major sectoral indexes which closed lower. This followed the losses suffered by MTN Nigeria, Nestle, GTCO, FBNH, ETI and others, dragging the market down on a low traded volume.
Market breadth for the week turned negative due to profit-taking and selloffs ahead of more corporate actions and end of the quarter window dressing activity by fund managers and other. This is likely to support the recovery in the short to long-run, while investors increased their positions in the hope of higher dividend payouts and yields.
During the week, losers outnumbered gainers in the ratio of 44:24 on selling sentiments, as revealed by the investor sentiment report showing 8% ‘buy’ volume and 92% sell position. Money Flow Index, however, declined to 63.55bps from the previous week’s 68.89 points, an indication that funds left the market.
NGX’s index action remains relatively strong on a weekly time frame, despite pulling back in two trading weeks on a selling sentiment to trade below seven-day moving average and 47,000 points to test the 46,931.38 basis points. The candlestick formation, at the end of the week showed that sellers are in charge at a time the release of more 2021 audited financials is expected in the market to give a direction. The candlestick pattern indicates a possible continuation of the trend, depending on market forces in the new week. Meanwhile, market recovery is still strong. Also, all eyes are on the fixed income market yields and oil prices to further support market fundamentals and attract liquidity to the equity space. The NGX at this point is creating new buying opportunities for dividend income investors.
Bearish Sectoral Indices
The sectorial performance indexes for the week were in red, led by the NGX Insurance after losing 1.40%, followed by Consumer Goods, Banking, Industrial and Energy with 1.10%, 0.66%, 0.02% and 0.02% respectively.
Transactions in volume and value terms were down as investors exchanged 1.18bn shares worth N16.60bn, compared to the previous week’s 2.45bn units valued at N20.65bn. This volume was driven by Financial Services, Consumer goods and Conglomerates industry stocks, Fidelity Bank, UBA, GTCO, Zenith Bank and Transcorp.
Chemical Allied Products and Fidelity Bank were the best-performing stocks for the week, gaining 10% each, closing at N19.80 and N3.30per share respectively on dividend of N2.10 and earnings expectation. On the flip side, RT Briscoe and UPDC lost 17.50% and 12% respectively, at N0.66 and N0.88 per share, purely on profit-taking and selloffs.
Outlook for the week
We expect improve sentiments in the new week, as all eyes are on deadline for submission of 2021 audited accounts, in the midst of expected more dividend announcements and end of the quarter window dressing by fund and portfolio managers. Also, investors and traders continue reacting to numbers, as revaluation of quoted companies on their earnings performance and growth prospects continue ahead of Q1 2022 numbers. We note that income investors continue buying into dividend-paying stocks,
Q2 Master Class Theme
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C. The Power of Earnings in a Post Pandemic Shift & Political Uncertainty, Mr Ambrose Omordion, Chief Research Officer, Investdata Consulting Ltd
Take way from this master class:
1. The volatile start to the year in financial markets is set to continue for this year and beyond 2023 election.
2. Economic recovery, high inflation, a post-pandemic repricing of equity, global trend and the Ukraine-Russia war have the potential to disrupt markets
3. How to navigate through this pre-election year environment and its challenges, as market volatility and sector rotation should present good opportunities for discerning traders and investors.
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5. Hot stocks to deliver 2-time inflation rate returns and gains in 91 days
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