Market Update for the Week Ended August 12 and Outlook for August 15-19
The nation’s equity market had a mixed trend and sentiments to extend the previous week’s bear transition as the second half of the year has been rough for the market and major indexes, but all is not lost yet. The better than expected corporate numbers, have so far, revealed the undervalued state of the many stocks and higher upside potential, looking at the 52-week high and low Price to Earnings Ratios, following the market value of these companies on the exchange.
As a market player on the Nigerian Exchange, how prepared are you, because understanding stock market dynamics will help you see big opportunities and gains in your portfolios in the remaining few months of 2022, despite being a pre-election year could offer great deals and buying opportunities on NGX. In fact, there are opportunities to buy some really outstanding companies in earnings performance and positive technicals right now, regardless of the low liquidity in the market due to rate hike by CBN to checkmating the rising inflation that have refused to abate.
Traders and investors should consider this prevailing market conditions to load up some oversold blue chip stocks trading on the major sectors and indexes that are leaders, which may be on their way to a strong rebound, despite the cautious trading in stock market and oil in the international market, just as some Pension Funds Administrators and big investment banks are still bullish. NGX index action and other indexes are making lower lows and lower highs to reveal the prevailing trading patterns in the midst of strong earnings, low liquidity and mixed sentiments.
The index action or chart above shows what is happening with supply and demand dynamics, regardless of how you and others feel above the whole market direction, high inflation, interest rate hike, low liquidity and confidence.
Noteworthy also is the fact that some corporate results came below expectation, especially low and medium cap companies that posted mixed and even disappointing numbers. As such, let your stop-loss and exit strategies guide you at a time like this. We note also that ahead of next year’s general elections in the country, the prevailing insecurity and economic uncertainties as seen through the rising inflation and interest rates, continue to taking a toll on the value of the Naira, while the soaring national debt remains a major source of concerns among equity and fixed income investors at this moment.
In all these, there is position taking in the equity market, hence the need for investors to navigate the market now that many stocks look cheap in the strength of impressive earnings and relatively low prices. The market cycle of bear situation and market bottom in the face of technical pattern of oversold market or individual stocks signal that uptrend is underway, as bargain hunters take advantage of pullbacks and low prices to reposition their portfolios.
The pullbacks on the NGX make stocks cheaper, as revealed by the prevailing low Price to Earnings Ratio and post-Covid impressive earnings performance of listed companies that had supported the NGX rally and stability over the past three years, despite the low participation of foreign portfolio investors. These strong earnings have continued to support the market this year, just as the corporate numbers released have been impressive, despite the harsh economic environment, due to the high cost of production, rising inflation and high interest rate occasioned by the war between Russia and Ukraine, and the mismatch in economic policies by the government. Also, the market closed below 50,000 mark, as it trades below the ‘T line and 50-day moving average, to attract bargain hunters as sector rotation and portfolio rebalancing increased amidst the inflow of more corporate earnings as all eyes are on first tier banks results.
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Movement Of NGXASI
It was a bearish trading week with four sessions of down markets and a day of up market amud selloffs in high priced stocks and blue-chips continue to drive the oscillation and pullbacks that create opportunities for players to reposition their portfolios, amid interpretation and analyses of macroeconomic data and earnings released so far. Also, all eyes are on the July Consumer Price Index and more half-year earnings reports with higher possibility of interim dividends, especially from the first-tier banking stocks.
Trading for the week, opened on a negative note, reversing gains of the previous session, after losing 0.46%. This trend was extended to Tuesday when there was a sharp decline of 2.3%, before the index a 1.5% rebound at the midweek, but recorded 0.12% and 0.74% pullback again on Thursday and Friday respectively on selloffs in BUA Cement and Stanbic IBTC. These brought the week’s total loss to 2.09%, compared to the previous week’s 070% loss.
Cumulatively, the benchmark NGX All-Share Index shed 1,058.26 basis points, closing at 49,664.07bps, compared to the week’s 50,722.33bps opening level for the week, touching an intra-week low of 49,337.73bps and a high of 50,740,18bps, after opening the week at 59,370.25bps. Market capitalisation also fell by N571bn during the period, closing at N26.79tr, from the previous week’s N27.36tr, which also represented a 2.09% value loss.
The Low and medium cap stocks dominated the week’s advancers table that attracted mixed sentiments amid volatility and pullbacks in BUA Foods and others. Also, notable is the fact that investors are taking advantage of the pullbacks.
Market breadth for the week remained positive as gainers outnumbered losers in the ratio of 33:26 on selling sentiments as revealed by the investor sentiment report showing 23% ‘buy’ volume and 77% sell position. Money Flow Index was looking down at 50.61bps from the previous week’s 57.69 points, an indication that funds left the market on a weekly chart to reflect the high yield in fixed income instrument and others, just as daily time frame money flow index was equally down, revealing that funds exited the market on Friday.
The NGX index action on a weekly and daily time frame pulled back on a mixed sentiment of selling momentum, as the market remains strong in the midst of increased volatility and selloffs. We note also that the index is trading below the ‘T’ line and 20-day moving average to signal the likelihood of breakdown and reversal, depending on liquidity level and reaction to earnings report. The major strong support level of 49,603.30bps after testing 49,337.73bps on a low traded volume to remain above the 50-day moving average. The candlestick formation, at the end of the week, showed sellers are in control, as investors and analysts digest macrocosmic data, and other factors to reposition their portfolios for Q3 and beyond. The candlestick pattern indicates continuation of the trend, depending on market forces in the new week.
Bearish Sectoral Indices
Sectorial performance indexes for the week were down, except for the NGX Consumer Goods that closed 3% higher, while the NGX Industrial Goods led the decliners, losing 5.19%, followed by Insurance, Banking, and Energy with 1.85%, 0.89% and 0.37% respectively.
Transactions in volume and value terms were up, with players trading 1.51bn shares worth N13.55bn, compared to the previous week’s 705.64m units valued at N12.85bn, with volume driven by Financial Services, Services and ICT sectors. Specifically, the week’s volume was driven by trades in Capital Hotel, FBNH, Jaiz Bank, Accesscorp and Chams.
The best-performing stocks in the week were Ikeja Hotel and Multiverse, which gained 30.93% and 29.79% respectively, and closing at N1.27and N2.44 per share on market forces. On the flip side, Cutix and Caverton Offshore Support lost 14.58% and 10.26% respectively, at N2.05 and N1.05 per share, purely on selloffs and profit taking.
Outlook for the week
We expect a mixed trend and sentiment to continue in the midst of low liquidity, as investors digest economic data and half-year corporate earnings released so far ahead of the July inflation report expected to hit the market August 15. Also, players are repositioning their portfolio on the strength of earnings reports, as market players continue to analyze the interplay of Purchasing Managers’ Index and industrial output. Also, investors and traders continue reacting to the earnings power, as the revaluation of quoted companies on their earnings performance and growth prospects continue. We note that income investors have sustained buying into interim dividend-paying stocks.
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