Market Update for the Week Ended October 7 and Outlook for October 11-14
The bear run on the Nigerian Exchange continued further into the first trading week of October, thereby extending the corrective wave and selloffs for the fifth consecutive week, on reactions to the latest interest rate hike and stagflation environment that is still influencing portfolio repositioning and sectorial rotation by investors.
Also, the benchmark NGX All-Share index recorded its highest weekly decline in recent times, breaking down various psychological lines ahead of its critical support levels, amid selloffs and profit taking in highly priced stocks. These dragged the market lower in the midst of a continued decline in transaction volume, further confirming the wait-and-see attitude of market players, who are on the lookout for the Q3 macroeconomic numbers and corporate earnings, in the face of a dicey economic outlook and sovereign risk concerns.
Stock prices across the major sectors of the market witnessed selloffs, including large cap stocks and blue-chip companies, while position taking hit banking stocks despite pulling back on profit taking and fears during the period. It is noteworthy that recent earnings from the banking sector and others revealed 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 liquidity and rising yields in the fixed income market has, so far, left the equity space relatively quiet since the back-to-back rate hike by the Central Bank of Nigeria at its last two Monetary Policy Committee meetings. This has reflected in the volume of transactions that indicates the absence of even the domestic institutional investors like pension and fund managers.
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 selling sentiments, resulting from panic selloffs 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 bargain hunters taking position to hedge against the soaring inflation.
The NGX index’s action on a weekly chart is still trading below the ‘T line’ and 50-day moving average, as selling pressure continued across the sectors. Portfolio rebalancing has increased in the midst of expected Q3 interim dividend payment. 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 rebound on the back of OPEC production cuts to trade at $97.42 being the highest weekly gain in recent time in the midst of recession fear and supply tighten due to Russia Ukraine war. Despite the 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
Of the four trading session of the week, following the declaration of Monday, October 3, as public holiday to mark Nigeria’s 62nd independent anniversary, the NGX index had a free fall with three days of down markets and one up, amid price corrections. Major sectors and blue chip stocks suffered losses, driving the oscillation and pullbacks that create opportunities for players to reposition their portfolios, amid interpretation and analyses of prevailing macroeconomic data and expected earnings.
The week’s trading started on a negative note, extending the previous session’s loss, by 0.29%, followed at midweek with the further slide marginal 0.09% slide, before the sharp 3.2% pulling back on Thursday. There was a seeming weak rebound on Friday when the NGXASI chalked 0.19% on bargain hunting in value stocks that suffered losses, bringing the week’s cumulative loss to 3.41%, compared to the previous week’s 0.01% slight loss position.
Consequently, the key performance NGXASI shed 1,672.43 basis points, closing at 47,351.43bps, compared to the week’s 49,026.62bps opening level, after touching an intra-week low of 47,238.35bps and a high of 49,038.76bps. Market capitalisation also fell by N660bn, representing a 2.5% depreciation in value during the period. The different in percentage decline was due to the listing of 2.5bn shares of Geregu power Plc at N100 per share. Market capitalization for the week closed at N25.79tr, from the previous week’s N26.45tr,
During the period under review, the advancers’ table was dominated by low and medium cap stocks amid the selloffs that hit high priced stocks due to volatility and selling sentiments. Also notable is the fact that investors are taking advantage of the price correction to buy into value and high dividend yield companies.
Market breadth during the week remained negative as losers outnumbered gainers in the ratio of 46:11 on selling pressure as revealed by investdata sentiment report showing 6% ‘buy’ volume and 94% sell position. Money Flow Index was looking down at 22.98bps from the previous week’s 32.64 points, an indication that funds left the market on a weekly chart to reflect selloffs in the market.
The NGX index action continued in its decline phase on the weekly and daily time frame, with low traded volume signaling cautious trading, as the bear transition continued on the daily time frame to trade below the T line on a selling sentiment and weak 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 slightly below the ‘T’ line and 50-day moving average on a weekly time frame to signal possibility of downtrend, which the state of Q3 financials and September consumer price index can reverse or dip further.
Bearish Sectoral Indices
Sectorial performance indexes for the week were down, led by the NGX Banking which lost 3.37%, followed by Insurance, Energy, Consumer and Industrial goods with 1.16%, 1.02% 0.56% and 0.33% respectively.
Transactions in volume and value were down, as stockbrokers traded 586.94m shares worth N8.84bn, compared to the previous week’s 1.01bn units valued at N10.41bn, with volume driven by Financial Services, ICT and conglomerates industry. Specifically, the week’s volume was driven by trades in GTCO, Sterling Bank, Zenith Bank, Etranzact and Transcorp.
Multiverse and Geregu Power were the best-performing stocks for the week, gaining 21.95% and 20.90% up respectively, closing at N4.50 and N120.90 per share on market forces and sentiment. On the flip side, NASCON and Cornerstone Insurance lost 13.64% and 10.71% respectively, at N9.50 and N0.50 per share, purely on selloffs.
Outlook for the week
We expect a mixed trend on bargain hunting and reaction to expected macroeconomic reports and Q3 corporate earnings. Also, as investors are repositioning their portfolio on the strength of Q3 earnings expectation. 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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