Expect Mixed Trend, Increased Positioning, Profit-Taking, Ahead MPC Outcome, Economic Data

Market Update for May 18

Profit-taking activities continued on the Nigerian Exchange at the midweek on a high traded volume with the composite NGX All Share Index extending its negative outing for a third consecutive session. Trading closed marginally lower in the face of negative market breadth and selling pressure on a seven-day moving average, as the index tries to resist further southward movement, despite sliding into the decline phase gradually.  

The price correction at the end of Wednesday’s trading was minimal, as traders continued to cash out their profits from the recent rally and uptrend that lasted for almost a month, especially as selling in medium, and low cap stocks dragged the market down. This happened while market players continue to digest the inflation reports and earnings yields, ahead of next week’s Monetary Policy Committee meeting and other concerns related to next year’s general election activities kicked off, beginning with primaries of political parties at the end of this month.

As we have always said, profit-taking is one of the market dynamics that create opportunities for new entrants as players await pullbacks to jump into fundamentally sound stocks with positive returns above the inflation rate. Also, investors are keenly observing happenings on the nation’s economic front, and in the face of another slight decline in the Central Bank of Nigeria (CBN) Treasury Bills’ primary market auction rates, especially the long-tenor 364 days.

The April inflation rate at 16.82% in the report recently released by the NBS may likely trigger an outflow of funds from fixed income instruments into high dividend yield stocks as a hedge, at a time the real return has moved deeper into negative territories. Stakeholders are, however, anxiously awaiting plans by the CBN to intervene in the petrol and gas products sector, which as announced was targeted at making premium motor spirit and diesel available, thereby easing the pain of manufacturers, SMEs, and households across the country, in the face of the epileptic power supply.  We note also and await the implementation of the directive by the National Assembly that the Nigerian National Petroleum Company provides aviation fuel for local airline operators, while another MPC meeting is around the corner, but nothing has happened to the CBN plans.

As noted earlier, selling pressure has persisted for three straight days on profit booking, just as position taking was witnessed across the major sectors, except for industrial goods that recorded a loss in the face of high volume patterns and earnings power. Tentatively, the continued mixed direction of the fixed income market yields and TB rates may hurt the selloffs in the stock market, amidst the ongoing war in Ukraine that has influenced the global markets in recent times.

Oil price oscillation continues in the international market, trading at $110 per barrel, on the news that Shanghai has signaled an end to the lockdown imposed due to the impact of the ravaging Coronavirus pandemic. This has been made worse by the EU embargo on the importation of Russian oil and a slight increase in production output by OPEC. The high prices of crude oil and diesel are pushing production and living costs up, heightening inflationary pressures across the globe on a weak economic outlook, thereby influencing monetary policies of central banks as they move to checkmate the impacts of the Russia-Ukraine conflict on the global economy to avoid a global recession. The nation’s soaring inflation is a potent threat to the fixed income market and investment yields, which should be an indication that more funds may likely flow into the equity space as institutional investors balance their portfolios.

However, market corrections are here as a result of profit-taking, hence the need to rely on your stop-loss effectively at this point of the distribution phase signals continuation, especially when high cap stocks that control 70% of market capitalisation move down ahead of reactions to their earnings and expected dividend payments in May and June 2022.

The NGX index’s action pulled back again, sliding into the decline phase, but still trading above the ‘T-Line’ and 20-day moving average on a downtrend. The market is relatively strong, despite the pullbacks that started on Monday since the strong support level is 51,805.41bps region, while volatility persists and uptrends towards the next breakdown sported around 52,517.76bps. Should the index break this point, the next visible support is 51,956.75bps.

Technically, the NGX index is already on a downtrend due to profit-taking and selloffs in the midst of impressive earnings and sector rotation. The possibility of the market sustaining this trend is high as a function of market forces and improved economic conditions during this quarter, following which we advise investors to play defensive stocks and reduce investment risks around the market.

Midweek’s trading started on the downside and was sustained for the rest of the session, on profit-taking across high and low priced stocks, a situation that pushed the NGX’s index to an intraday low of 52,721.34bps where it closed for the day, from its highs of 52,793.13ps.  

Market technicals were negative and mixed, even as volume traded was higher than the previous day in the midst of breadth favoring the bears on a selling pressure as revealed by Investdata’s Sentiments Report showing a 100% sell position. The total transaction volume index stood at 1.56 points, just as momentum behind the day’s performance was strong with Money Flow Index looking down at 71.02pts, from the previous day’s 80.46pts, indicating that funds left the market.

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Index and Market Caps

At the end of trading, the benchmark NGXASI shed 35.28bps, closing at 52,721.34bps, after opening at 52,756.62bps, representing a 0.07% drop. Similarly, market capitalization fell by N19.02bn, closing at N28.42tr, from the previous day’s N28.44tr, which also represented a 0.07% value loss.

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The downturn was driven by profit-taking and selloffs in Lafarge Africa, Berger Paints, May & Baker, NGX Group, FBNH, Fidson, Neimeth, Accesscorp and Nahco, among others. This impacted mildly on Year-To-Date gain, reduced to 23.43%. Market capitalization growth stood at N6.57tr YTD, representing a 26.93% rise over the opening level for the year.

Bullish Sector Indices

Performance indexes across sectors closed green, except for the NGX Industrial goods that lost 0.19%, while the NGX Insurance led the advancers with a 0.81% gain, followed by Consumer goods, Energy, and Banking with 0.29%, 0.19%, and 0.10% respectively.

Market breadth turned negative, as losers outnumbered gainers in the ratio of 23:20; just as transactions in volume and value terms rose, with investors exchanging 611.97m shares worth N7.42bn. Volume was driven by trades in FBNH, Jaiz Bank, GTCO, FCMB and Transcorp.  

Transcorp Hotel and Champion Breweries were the best-performing stocks of the session, gaining 9.84% and 7.03%, closing at N5.36 and N3.96per share respectively on market forces and impressive Q1 numbers respectively. On the flip side, Academy Press and Berger Paints lost 9.93% and 8.86% respectively, closing at N1.36 and N7.20 per share, on profit-taking.

Market Outlook

We expect a mixed trend, increased positioning and profit-taking, and portfolio rotations as market players digest the macro-economic data and Q1 corporate earnings release, ahead of March year-end 2022 audited financials with dividend announcements to support uptrend in the new month amid the rebound in oil prices. Also, the market continues to interpret the rising inflation in relation to the crude oil price and other factors, in the midst of profit-taking and portfolio rebalancing. This will result in market players targeting fundamentally sound and dividend-paying stocks in the hope of dividend announcements.

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Ambrose Omordion

CRO|Investdata Consulting Ltd





Tel: 08028164085, 08179547605