Market Update for the Week Ended October 21 and Outlook for October 24-28
It was a mixed outing on the Nigerian Exchange for the period under review as the bear dominated trades due to selloffs in Airtel Africa and other blue chips, forcing the NGX Exchange to suffer its highest weekly loss in months. This was blamed on investors’ reaction to continued rate hike by Central Bank of Nigeria (CBN), and the negative macroeconomic data in the midst of an already challenged economy with sovereign risk. Recall that international rating giant- Moody’s, on Friday announced a downgrade of Nigeria’s sovereign risk, blamed on the inability of the Federal Government to efficiently recover revenue from the nation’s oil production due to pipeline vandalism and outright theft of crude oil that has been described as an organised crime. Moody’s downgraded Nigeria’s local currency and foreign currency long-term issuer ratings as well as its foreign currency senior unsecured debt ratings to B3 from B2 and placed them on review for downgrade. In 2021, the agency noted, Nigeria’s hydrocarbon exports amounted to $41bn, while the general government received a mere $5bn in net oil revenue, representing 1 per cent of GDP.
In all these, there are expectations of more earnings reports inflow to the market, even as the lingering correction has created entry opportunities for discerning investors and traders to take advantage of the low prices to position and reshuffle their portfolios.
The impressive Q3 earnings from Africa Prudent, Skyway Aviation and the mixed numbers from Unilever, all signal of where investors should look for returns, especially as inflation continues northward, even if at a slow pace.
The benchmark NGX All-Share index recorded a sharp weekly decline that wiped out previous week’s gain, deepening the bearish wave to breakdown various psychological lines of 47,000, 46,000 and 45,000 marks to trade at a critical support levels, as it signals reversal with the ranging and slight rebound noticed on the last trading of the week with seeming improved buying interests on that day. Bargain hunters took advantage of the prevailing low prices and attractive valuation of stocks to position more ahead of more company’s numbers.
Stock prices across major sectors of the market witnessed mixed buying and selling sentiments, including large cap stocks and blue-chip companies, while position taking hit the consumer goods and energy sectors, as the market ranged on profit taking and fears during the period under review. It is noteworthy that recent earnings from the banking sector and others reveal the undervalued state of the market and individual stocks, amid expectations that the prevailing low Price to Earnings ratios and divergence in real value and current market prices could inspire a rebound. However, factors and seasonality needed to support the market are unfolding amid the inflationary pressure and slow economic recovery.
The low supply and demand in the market is also an indication that smart money can mark-up the price any time and without notice. We urge investors to, however, wait for confirmation of the trend, with bargain hunters already taking advantage of the back-to-back pullbacks to position in value stocks with strong earnings capacity.
Meanwhile, market volatility continues to support technical traders in the midst of prevailing mixed sentiments, resulting from profit taking and fear in the midst of relatively low volume and higher earnings yields that signal a possibility of higher payouts at the end of the year. This is especially true of those that suffered losses in the midst of the strong numbers posted by these companies, thereby revealing their undervalued state, as seen in the high dividend yields pointing to the possibility of discerning investors taking position to hedge against the soaring inflation.
The NGX index’s action on a weekly time frame is still trading below the ‘T line’ and flat on 50-day moving average, as buying sentiments are renewed in some sectors. Portfolio rebalancing has increased in the midst of expected Q3 corporate actions. It is, therefore, time to use technical tools, if you have been ignoring the charts and fighting the trends, it is your chance to step up your game. At this current market mood, investors and traders should target leaders in the various sectors with strong fundamentals, and positive technicals as the market is on uptrend movement on the strength of funds entering the equity space.
To navigate this current market situation profitably using fundamental and technical analyses to run, join investdata live sessions at noon every trading day “and also get investdata technical toolbox to play the current state of the market do suggest that discerning investors are gradually becoming greedy, while others are fearful, as seen in the recent range market. Despite the mixed sentiment witnessed, it is time to go shopping for undervalued stocks, sectors and the next insider playing opportunity.”
Oil price sustained its oscillation as it rebound again to trade at $93.63 on fear of inflation data and recession, in the midst of supply tighten due to Russia Ukraine war. Also, weak demand and fear of recession around the globe on 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.
Movement Of NGXASI
The NGX index had a mixed trend of three down sessions and two up days, after major sectors and blue chip stocks recorded gains, driving the oscillation and pullbacks that create opportunities for players to reposition their portfolios, amid expected macroeconomic data and earnings report.
Trading for the week opened on a negative note, halting the previous session’s gain, by 2.32%. This was sustained till midweek with index losing 2.21% and 2.34% respectively for Tuesday and Wednesday. But rebounded slightly on Thursday and Friday by 0.03% and 0.15% respectively, bringing the week’s total loss to 6.67%, compared to the previous week’s 0.41% gain.
Consequently, the benchmark NGXASI shed 3172.31 basis points, closing at 44,396.73bps, compared to the week’s 47,569.04bps opening level, after touching an intra-week low of 44,294.20bps and a high of 47,588.29bps. Market capitalisation also fell by N1.73 trillion, representing a 6.67% depreciation in value during the period to closed at N24.18tr, from the previous week’s N25.91tr,
During the period under review, the advancers’ table was dominated by low and medium cap stocks, amid rekindled buying interests that hit high priced stocks due to volatility and mixed sentiments. Also notable is the fact that investors are taking advantage of the price corrections to buy into value and high dividend yield companies.
Market breadth was positive as advancers outnumbered decliners in the ratio of 33:29 on selling sentiment as revealed by investdata sentiment report showing 3% ‘buy’ volume and 97% sell position. Money Flow Index looking down to 18.56bps, from the previous week’s 23.76 points, an indication that funds left the market on a weekly chart to reflect selloffs that hits Airtel and others in the market.
The NGX index action signaled the onset of the early accumulation phase on the weekly chart and ranging market on a daily time frame, with low traded volume signaling cautious trading by investors, as the bear transition continued on the daily time frame to trade below the T line on a buying sentiment and slow momentum. This was despite signaling a reversal on Friday as the market remains relatively strong in the midst of increased volatility and low liquidity. We note also that the index is trading below the ‘T’ line and on 50-day moving average on a weekly time frame to signal possibility of sustained rebound, which the state of Q3 financials and September consumer price index can support further or pullback.
Mixed Sectoral Indices
Sectorial performance indexes for the week were mixed, with the NGX Energy and Consumer Goods closing 2.13% and 0.73% lower respectively, while the NGX Industrial Goods led the advancers after gaining 3.17%, followed by Banking and Insurance with 1.93% and 1.72% respectively.
Activities in volume and value were mixed, as stockbrokers traded 491.82m shares worth N11.92bn, compared to the previous week’s 586.94m units valued at N8.84bn, with volume driven by Financial Services, ICT and conglomerates. Specifically, the week’s volume was driven by trades in GTCO, Mutual Benefits Assurance, FBNH, Zenith Bank and Chams.
Academy Press and Fidelity Bank were the best-performing stocks during the week, gaining 11.45% and 10.14% up respectively, closing at N1.46 and N3.80 per share on market forces and sentiment. On the flip side, Airtel Africa and NEM Insurance lost 27.10% and 9.98% respectively, at N1,312.20 and N4.42 per share, purely on selloffs and profit taking.
Outlook for the week
We expect a mixed trend on bargain hunting and reaction to early filers, while all eyes are on more Q3 corporate earnings. Also, investors are repositioning their portfolios on the strength of Q3 earnings expectations, just as players continue react to the earnings power and revalue of quoted companies on their earnings performance. We note that income investors have sustained buying into dividend-paying stocks with high yields.
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