Expect Mixed Sentiment On Positioning, As Investors Bet On 2023Q4 Numbers, MPC Meeting Outcome

Market Update for January   18

The bull sentiments continued on the Nigerian Exchange Thursday amidst buying interests and profit taking, as the benchmark NGX All Share index closed higher as large cap stocks appreciated, weighing on the market positively. This extending the bull-run for the sixth successive session on a high traded volume and negative market breadth in the face of volatility and ongoing earnings reporting season.

The mixed trading pattern on the exchange reflected profit booking and portfolio repositioning by market players as they hedged against Nigeria’s galloping inflation, while timing the dividend season, a situation that is not helped by the mixed outlook on the fixed income market where rates continue to fluctuate in the face of unclear direction from the Central Bank of Nigeria (CBN), whose Monetary Policy Committee (MPC) has postponed several meeting. Both the monetary and fiscal authorities have failed to rein in on the galloping inflation now at its all-time high, just as interest rate remain very high in a struggling economy where macroeconomic indices are weak, due to the persisting low purchasing power among the citizenry, a situation that is worsened by the increased energy prices, and insecurity across the country. Other factors include the imported inflation due to the sustained depreciation of the Naira, which has received no respite from the continued backlog settlement of foreign exchange transactions announced by the CBN.

At the current state of the market, market players should trade with caution and know when to take profit, even as the global economy outlook remains mixed in the face of rising geopolitical tensions in the Middle East and Eastern Europe. There is also the fear of a recession among others that will continue to influence investment decisions, while driving volatility, especially as inflation is raising up its ugly head again in the mature economies, the US Dollar is becoming stronger and the possibility of a rate cut is shaking due to the unfolding events across the globe. Another cycle of rate hike is bound to pile pressure on the stock market despite the earnings season that is around the corner all of the world.

The benchmark index made another new all-time high, crossing the 91,000 psychological line to test 91,901.79bps while heading to 92,000 basis points mark on buying sentiments that has kept the index’s action above the T-line. Momentum remains strong in the midst of very high traded volume at above the short and long-term Moving Averages on the daily, weekly and monthly time frame. Portfolio rebalancing on the exchange continued even as earnings season has kicked off, while companies like Conoil Plc, Nahco, Honeywell Flourmill, Flour Mills and others notified the NGX of their board meetings and closed period for the 2023 full-year financials.

As mentioned in our previous update, the gaining momentum slowed down as revealed by candlestick formation at the end of the trading session to extend the markup phase which is likely continuation but needs confirmation as trading opens this morning. Therefore, market players should target companies with consistent track records of dividend payment, strong fundamentals and growth prospects that will support further growth in earnings which price feeds on in any market cycle. Technically, the index’s action has remained on overbought, which is also a topping chart pattern.

The momentum indicators continues to show strength, despite the overbought state of the market, as the ADX read 74.30, while RSI and Money Flow Index are looking up to 92.63 and 88.12 points against the previous session 91.67 and 87.28 points respectively. This is good as demand for stocks are high but it should be, also a concern for investors and smart traders as they trade with caution in a mixed market as revealed after Thursday trading. The trading volume pattern suggests more new entrance into the market, as institutional investors increase stakes in equity, in the midst of others investment windows returns remaining below inflation and real negative.  Also, the anticipated financial market and economic reset in 2024, comes with challenges and huge opportunities to create wealth for smart investors and traders.

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Oil price oscillation continued, trading at $79.36 per barrel in the midst of optimistic forecast from International Energy Agency of robust growth in global oil demand and disruption in US crude output due to cold winter weather in the face of Middle East conflicts escalating, while the war in Ukraine and Russia is ongoing to influence the global economic outlook. The geopolitical tension across the globe is a major threat to many economies. Also, oil supply increase by OPEC and others impact oil price as it continued trade below $80. This trend may likely continue in 2024, this up and down movement of oil price also continues to drive volatility.

Thursday’s trading started slightly in the red and oscillated to rebound for the rest of the session on buying interest oil and manufacturing companies, despite the profit taking in banking stocks, among others, a situation that pushed the NGX’s index across 91,000 marks to an intraday high of 91,901.79bps from its lows of 89,974.79bps before closing above its opening level at 91,896.97 bps.

Market technicals were positive and mixed, as volume of trade was slightly lower compared to the previous session in the midst of breadth favoring the bears on a buying sentiment as revealed by Investdata’s Sentiments Report showing 100% buy position and 0% sell volume. The total transaction volume index stood at 1.63 points, just as energy behind the day’s performance was strong as Money Flow Index looking up at 88.12pts, from the previous day’s 87.28pts, indicating that funds entered the market.

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Index and Market Caps

The composite NGX All Share Index at the end of Thursday gained  1,833.72bps, closing at  91,896.97bps after opening at 90,063.27bps, representing a 2.04% growth, just as market capitalization rose by N1.01tr, closing at N50.29tr from the previous day’s N49.28tr, which also represented a 2.04% appreciation in value.

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Meanwhile, the session upturn was driven by demand for the shares of Dangote Cement, BUA Cement, Conoil, Eterna, Transcorp, PZ, Dangote Sugar, Wema Bank, NEM and Unity Bank, among others. This impacted positively on Year-To-Date gain, ballooning it to 22.90%. Market capitalization YTD gain stood at N7.24tr, representing 22.90% above its opening level for the year.

Mixed Sector Indices

The sectorial performance indexes for the session were mixed with the NGX  Insurance and Banking indexes closing 2.11% and 1.89% lower respectively, while NGX Industrial Goods index led the advancers after gaining 7.83%, followed by Energy and  Consumer goods  with 2.96% and 0.87% respectively.

Market breadth turned negative as losers outnumbered gainers in the ratio of 42:31, whereas activities in volume and value were mixed, after investors exchanged 1.14bn shares worth N19.29bn. Volume was driven by trades in Transcorp, Universal Insurance, VeritasKap, Jaiz Bank and GTCO.

Eterna and NEM were the best performing stocks, gaining 10% each, closing at N20.90 and N8.25per share respectively on news of major distributor of Dangote Petroleum and expectation of earnings.  On the flip side, Ikeja Hotel and Royal Exchange lost 9.79% and 9.78& respectively, closing at N8.11 and N0.83per share, purely on profit taking.

Market Outlook

Being the last trading day of the week, we expect mixed sentiment on positioning and profit taking, as portfolio realignments persist ahead of more unaudited Q4 2023 numbers in the face of volatility and expected MPC meeting.  Any pullback at this point will add more strength to upside potential. As such, investors should take advantage of price correction. Also looking at the trends and events across the globe and back home.

Ambrose Omordion

CRO|Investdata Consulting Ltd




Tel: 08028164085, 08179547605