Expect Mixed Trend On Cautious Trading, As Investors React To Impressive Earnings Reports

Market Update for July 25

Trading on the week started on the Nigerian Exchange Monday on a negative note as selloff hit telecommunication giant MTNN ahead of the company’s half-year results, thereby extending the bearish mood for a fifth consecutive session, confirming the entry of the market into the decline phase on a very low traded volume and negative market breadth. Some major sectors of the market witnessed a buying sentiments as the market entered its peak of earnings season ahead of statutory deadline by keeping to their post-listing requirements to avoid penalty.

The corrections and pullbacks on the exchange makes the market cheap as revealed by the low Price Earnings Ratio and post-Covid impressive earnings performance of listed companies that had supported the NGX rally and stability over the past three years, despite the low participation of foreign portfolio investors. These strong earnings have continued to support the market this year, just as the corporate numbers released so far have been impressive, despite the harsh economic environment as a result high cost of production, rising inflation and high interest rate occasioned by the war between Russia and Ukraine, and the mismatch in economic policy by the government. Also, the market broke down the 52,000 mark to trade below the ‘T line and 20-day moving average, to attract bargain hunters as sector rotation and portfolio rebalancing increased amidst the inflow of more corporate earnings in the market.

The half-year earnings reports from Ecobank Transnational Incorporated, FCMB Holdings and BUA Cement were impressive revealing improved performance with top and bottom lines that are up, but the market is yet to react. Even the numbers released before now are witnessing decline in price, just as more scorecards are expected, the days of surprises and disappointing earnings are here. 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 reversal is underway depending on the earnings power.

To navigate the month profitably using fundamental and technical analysis 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.”

Technically, the NGX index’s action is on its decline phase as selloff in high cap stocks and cautious trading activities heightened on increase in interest rate, despite the bull trend on medium and long term remained intact on high priced stocks rally or price gain. The daily index and price actions as we go into the earnings season will give direction as to what we should do and expect in Q3, just as more insights into the entire second half will unfold. Market recovery at this point may be powerful, depending on the state of the expected corporate and economic numbers, although with the possibility of maintaining what we saw in 2021 and the Q1 corporate earnings, as portfolio rebalancing and sector rotation continue.

Oil price rebounded to $105.20 per barrel in the international market, on a tight supply after three days of losses to reflect the fear of recession, despite remaining above $100 per barrel, in the midst of slowing economic growth data from China and others. All these have continued to influence the monetary policy options of central banks as they move to checkmate impacts of the Russia-Ukraine conflict on the global economy to avoid the looming economic recession. Nigeria’s soaring inflation is a potent threat to the fixed income market and investment yields, which should be an indication that there will be a reversal of funds flowing back to equity space in no distant time, as institutional investors rebalance their portfolios.

Meanwhile, Monday’s trading opened sharply on the downside and sustained throughout the session on selloffs in blue-chip stocks, a situation that pushed the NGX’s index to an intraday low of 51, 327.74bps from its highs of 51,979.92ps before closing significantly below its opening points at 51,400.53bps.

Market technicals were negative and mixed, with lower volume traded than the previous day in the midst of breadth favoring the bears on a selling sentiment as revealed by Investdata’s Sentiments Report showing 11% buy position and 89% sell volume. The total transaction volume index stood at 0.48 points, just as energy behind the day’s performance was weak as Money Flow Index is looking up at 18.04pts, from the previous day’s 17.82pts, indicating that funds entered the market, despite down market.

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Index and Market Caps

The benchmark NGX All-Share index, at the end of Monday, shed 572.72bps, closing at 51,400.53bps, after opening at 51,979.92bps, representing a 1.11% decline. Similarly, market capitalization fell by N312.44bn, closing at N27.72tr, from the previous day’s N28.03tr, which also represented a 1.11% depreciation in value.

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Monday’s downturn was driven by profit taking and selloffs in shares of MTNN, United Capital, ETI, NGX Group, UBA, GTCO, Oando, FBNH, Cutix and Transcorp, among others, which impacted negatively on Year-To-Date gain, as it reduced to 20.33%, while market capitalization growth YTD was up slightly to N4.67tr YTD, a 24.31% rise over the opening level for the year.

Bullish Sector Indices

Performance indexes across sectors were up, except for the NGX Oil/Gas that closed 0.03% lower, while the NGX Banking led the advancers after gaining 1.03%, followed by Consumer goods, Insurance and Industrial goods with 0.12%, 0.06% and 0.04% respectively.

Market breadth was negative, with losers outpacing gainers in the ratio of 17:13; just as activities in volume and value terms were down, after players traded 98.75m shares worth N2.51bn, with volume driven by trades in UBA, Zenith Bank, Transcorp, GTCO and Dangote Sugar.

Chemical Allied Product and FTNcoca were the best-performing stocks after gaining 10% each closing at N18.70 and N0.33 per share respectively on earnings expectation and market forces. On the flip side, MTNN and Ucap lost 6.99% and 5.51% respectively, closing at N213.00 and N12.00 per share, purely on profit taking.

Market Outlook

We expect a mixed trend on cautious trading as investors react to the impressive earnings released so far, as more results are expected in interim dividend season. 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 on the lookout for Q2 GDP and flow of funds amid oil prices oscillation. 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