Expect Mixed Trend As NGXASI Resists Decline, Investors Bet On TB Auction Rates, MPC Outcome

Market Update September 15

Nigeria’s equities market, at the midweek, continued its slow rebound on increased buying interests in high and medium cap stocks as the positive news of declining inflation rate for a straight five months emerged early in the day.  According to data from the National Bureau of Statistics, the rate of increase in the prices of goods and services in August further dropped slightly, as shown by the Consumer Price Index at 17.01%, against the July figure of 17.38%. 

Although prices of commodities in the market continue to rise, these positive macroeconomic data emanating from NBS and the Central Bank of Nigeria (CBN) are indicators that the economic recovery is still intact, notwithstanding the fact that it has not started to reflect in the lives of Nigerians. Evidence of this is the fact that the cost of doing business and food items keeps galloping on daily basis, especially with the ongoing devaluation of Naira that has seen the Naira at almost N600/$1 in the black market. This imported inflation and insecurity have induced low farm outputs as prices of food items like Yam, beans, palm oil, and other staples remain exorbitant despite the onset of the harvest season.

Meanwhile, market players are turning the ongoing volatility into an opportunity to invest in value and growth stocks that have sustained two consecutive sessions of positive outing on a low traded volume and negative breadth. Also, the market is waiting to see the reaction of investors to the Treasury Bills’ auction rates, after inflation for the month of August grew by a slower 17.01%, ahead of the two-day regular meeting of the CBN Monetary Policy Committee (MPC), which comes Thursday and Friday. There is a higher possibility that benchmark Monetary Policy Rate will remain unchanged at the meeting, with the economic recovery still weak, and despite the positive macroeconomic data.

Technically, the NGX index action resisted further decline and instead inched up in the midst of strong buying sentiments with 100% ‘buy’ volume, regardless of the seeming selloffs across the major sector indexes. Midweek’s trading opened slightly on the upside before oscillating mildly between the midday and afternoon on selloffs and buy interests across board. This pushed the composite index to an intraday high of 38,968.34 basis points where it closed, from its lows of 38,858.01bps.

Market technicals were positive but the week as volume traded was lower than that of the previous day in the midst of breadth favoring the bears and buying pressure as revealed by Investdata’s Sentiment Report showing 100% ‘buy’ volume. The total transaction volume index stood at 0.62points, just as momentum behind the day’s performance was relatively weak, with Money Flow Index looking down at 23.79points, from the previous day’s 24.79points, an indication that funds left the market, despite the upmarket.

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Index and Market Caps

At the end of Wednesday’s trading, the composite index NGXASI gained 47.84 basis points, closing at 38,968.34bps, from its opening level of 38,920.50bps, representing a 0.12% up, just as market capitalization rose by N25bn, closing at N20.30tr, from the opening value of N20.28tr, also represented 0.12% appreciation in value.

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Midweek, the upturn was driven by the accumulation of position in stocks like MTNN, GTCO, FBNH, Honeywell, NNFM, UPDC, United Capital, May&Baker, and Learn Africa, among others, which impacted Year-To-Date loss mildly, as it reduced to 3.23%. The YTD loss in market capitalization YTD stood at N765.17bn, representing a 3.59% decline from the year’s opening value.

Mixed Sector Indices

Performance indexes across the sectors were mixed, with the NGX Industrial and Consumer Goods closing flat on Wednesday, while the NGX Oil/Gas Index led the decliners after shedding 2%, followed by Insurance and Banking with 1.15% and 0.39% respectively.

Market breadth was negative, as losers outpaced gainers in the ratio of 18:14, while transactions in volume and value terms were mixed after stockbrokers traded 141.41m shares worth N2.97bn, compared to the previous day’s 228.48m units valued at N1.88bn. Volume was driven by trades in Universal Insurance, Zenith Bank, UCAP, Transcorp, and Access Bank.

UPDC and NNFM were the best-performing after gaining 9.64% and 9.59% and closing at N1.82 and N8.00 per share respectively on Low price attraction and market forces. On the flip side, Transcorp Hotel and Consolidated Hallmark Insurance lost 10% and 9.43% respectively, closing at N4.50 and N0.48 per share, purely on profit-taking.

Market Outlook

We expect a mixed trend as players analyze the outcome of the TB auction rates and  August Inflation in the midst of foreign currency illiquidity and other factors ahead of the MPC meeting, just as investors and traders are taking advantage of market pullbacks to reposition, while many stocks remain undervalued and at the same time are trading within their buy ranges, a situation expected to attract funds into the equity space given the high dividend yields capable of serving as a hedge against inflation. Also, institutional investors and others continue to digest the Q2 GDP growth ahead of more first-tier bank results, as well as the continued repositioning of portfolios for the year’s last quarter. Also, investors are still observing the interplay of forces in the FX market as the CBN gives a guideline for the new digital currency platform. The day’s low volume suggests that institutional investors and others are still cautiously looking at the numbers. It is noteworthy that oil prices rebounded in the international market; corporate actions, as well as the interim dividend possibilities, are around the corner.


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