Market Update for October 17
Trading on the Nigerian Exchange opened for the week mixed and session, as profit taking amid selloff in Airtel Africa that weighed down the market amidst the earnings reporting season that kicked off with impressive numbers from United Capital, PZ Cussions, Living Stone Mortgage Bank and others.
Trading momentum improved in the face of a positive market breadth and selling sentiments as revealed by market metrics that wiped out the previous session’s gains, thereby extending the decline phase of the market. It broke down the psychological line of 47,000 as portfolio reshuffling and sector rotation continued in hope of more corporate earnings.
The benchmark NGX All-Share index closed sharply lower on a low traded volume, despite the position taking in some of the major sectors of the market, as inflation report for September showed an increase of 25 points to 20.77% year-on-year, from the previous month’s 20.52%. This was attributed to rise in the cost of imported goods, as a result of challenges in the foreign exchange market that had lingered for decades in Nigeria and is getting worse. Others included the rising cost production, insecurity and disruption in supply of foods products in the midst of harvest season.
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 to reposition their portfolio 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 prevailing low transactions in the market reflects the low liquidity and impact of high yield in the fixed income market, in the last TB primary auction 364 days rate hit 13%, but with the expected liquidity level to improve as 2023 electioneering activities move into top gear with the kickoff of party campaigns, considering the state of the nation’s economy and lingering insecurity. Also, more board meetings dates to consider and approve the financials for the quarter-ended September 30, 2022 are being scheduled for the coming days and weeks.
In the current market situation, traders or investors need to up their game, by understanding 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 US September Consumer price index report released yesterday. The UK experience, coming after the World Bank and IMF’s continued warning that the central banks should rethink and avoid pushing the global economy into yet another recession. We see that is already happening in UK, China, Japan and others. It is time for the Nigerian central bank and its Monetary Policy Committee to have a rethink before things go further out of hand.
Value investing is continuing on the exchange, with high earnings and dividend yields on improved earnings released so far in the year, coupled with the expectation of more quarterly corporate earnings to shape the market’s direction in the face of inflation hitting a 17-year high at 20.77%. This has caused many players to stay on the fence, waiting to confirm direction before jumping in, as outlook for the economy and the financial market remains unpredictable.
Despite the lingering high interest rates atmosphere, rising inflation and slowing industrial output as a result of policy changes and uncertainty around the globe, there are sectors, industries and individual stocks still seeing positive activities from traders and investors. There are equity players should pay attention to, as the correction in the NGX index action create buying opportunities in some sectors and individual defensive stocks with high dividend high yield and positive earnings growth.
At this point in the market, trade what you are seeing by looking at price action, momentum, market timing and forecast to boost your trading results in any market situation. So, the volume pattern and index structure in recent sessions show position taking, while funds enter some stocks as revealed by money flow index which need to be confirmed, especially as mixed sentiment supported the previous session candlestick formation.
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Oil prices sustained its oscillation to trade at $92.05, in the midst of renewed confidence on UK fiscal update and new direction of the government to foster country financial stability. Despite 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.
Monday’s trading started sharply in the downside and was sustained for the rest of the session, despite oscillating on position taking in banking stocks and other blue chip companies. This pushed the NGX’s index to an intraday low of 46,343.39bps from its highs of 47,588.29bps before closing below its opening level at 46,365.95bps.
Market technicals were strong and mixed, 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 2% buy position and 98% sell volume. The total transaction volume index stood at 0.88points, just as impetus behind the day’s performance was weak as Money Flow Index is looking up at 37.46pts, from the previous day’s 36.82pts, indicating that funds in the market was stable, despite closing lower.
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Index and Market Caps
At the end of Monday’s trading, the composite NGXASI fell by 1,234,19bps, closing at 46,365.95bps, after opening at 47,569.04bps, representing a 2.53% decline, just as market capitalization fell by N655.30bn closing at N25.25tr, from the previous day’s N25.91tr, which also represented a 2.53% depreciation in value.
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Meanwhile, the downturn was driven by selloffs and profit taking in Airtel, Dangote Sugar, Fidson, Aiico and Sovereign Trust Insurance, among others which impacted negatively on Year-To-Date gain, reducing it to 8.54%. Market capitalization gain YTD decrease to N1.43tr, representing a 15.65% rise over the opening level for the year.
Mixed Sector Indices
Sectorial performance indexes were mixed, as NGX Banking closed 0.87% higher, while NGX Insurance and Consumer goods were down by 1.187% and 0,06% respectively. Just as NGX Industrial goods and Energy closed flat.
Market breadth was positive, as advancers outpaced decliners in the ratio of 14:5; just as activities in volume and value were mixed, as players exchanged 135.39m shares worth N4.26 bn. Volume was driven by trades in GTCO, Courtvile Business Solution, Fidelity Bank, Sterling Bank and UBA.
PZ and University Press were the best-performing stocks, gaining 9.52% and 9.33% respectively, closing at N9.20 and N1.64 per share respectively on positive earnings with dividend of N1.01 and market forces. On the flip side, Airtel Africa and Sovereign Trust Insurance lost 10% and 7.14%, closing at N1,620 and N0.26 per share, purely on selloffs and profit taking.
We expect mixed sentiments to continue on reaction to earnings release so far and interpretation of September Consumer price index, as bargain hunters 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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