Market Update for October 31
Equities on the Nigerian Exchange finished the last trading day of October lower on a high traded volume, amid buying sentiments as market players expectedly reacted to the impressive company earnings with corporate actions. Particularly noteworthy is the fact that the number of Q3 interim dividend paying companies increased, putting smiles on the faces of investors ahead of the festive period. The continued mixed sentiment and selloffs among the blue chip stocks, despite the better than expected numbers posted by these companies weighed down the market’s benchmark NGX All-Share Index which closed lower on a negative market breadth.
The market extended to three consecutive sessions of bear transition 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. Also, the earnings reporting season officially winds down in the face of correction to reflect illiquidity in the market.
The profit taking and selloffs in the midst of these stronger earnings have made most stocks on the exchange cheap, relative to their intrinsic values, especially those in the banking, industrial, consumer goods and energy sectors that are likely to attract inflow of funds into 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 seem to have disconnected from economic realities, amid the 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 benchmark 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 Monetary Policy Committee meetings in November, January and March, and of course, the outcomes of the much talked about general elections.
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 $94.43, in the midst of US drawing down diesel and weak economic data from China . 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, Monday trading started slightly in the downside and was sustained throughout the session on selloff in MTNN, Vitafoam and others, a situation that pushed the NGX’s index to an intraday low of 43, 650.20bps from its highs of 43,912.82bps before closing below its opening level at 43,839.08bps.
Market technicals were weak and mixed, with higher volume of trade than the previous session in the midst of breadth favoring the bears on a buying sentiment as revealed by Investdata’s Sentiments Report showing 72% buy position and 28% sell volume. The total transaction volume index stood at 1.08points, just as momentum behind the day’s performance was weak as Money Flow Index is looking down at 34.21pts, from the previous day’s 40.60pts, indicating that funds left the market.
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Index and Market Caps
The NGXASI at the end Monday trading shed 73.56bps, closing at 43,839.08 basis points, after opening at 43,912.64bps, representing a 0.17% drop, just as market capitalization fell by N40.66bn closing at N23.88tr, from the previous day’s N23.92tr, which also represented a 0.17% value loss.
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As noted earlier, Monday’s downturn was driven by selloffs and profit taking in the shares of MTNN, International Breweries, Livestock, NGXGroup, GTCO, ETI, Aiico, and Ucap, among others, which impacted negative on Year-To-Date gain, reducing it to 2.63%. Market capitalization gain YTD decrease to N821 bn, representing a 7.89% rise over the opening level for the year.
Mixed Sector Indices
Sectorial performance indexes were down, except for NGX Insurance that closed 0.38% higher, while NGX Banking led the decliners after losing 0.81%, followed by Consumer goods and Energy with 0.38% and 0.35% respectively just as Industrial goods and Energy were flat.
Market breadth was negative with losers and gainers in the ratio of 18:8; just as activities s in volume and value were mixed, as stockbrokers transacted 160.01million shares worth N3.33bn. Volume was driven by trades in Transcorp, Accesscorp, Sterling Bank, Fidelity Bank and Sovergin Trust Insurance.
Nahco and Courtville Business Solution were the best-performing stocks, gaining 9.88% and 8.70% each, closing at N0.51 and N0.50 per share respectively on market forces. On the flip side, International Breweries and Livestock Feeds lost 9.78% and 9.73%, closing at N4.15 and N1.02 per share, purely on unimpressive earnings and selloffs.
We expect mixed sentiments to continue on reactions to 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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