Expect Mixed Trend On Drop In Selling Pressure, Reactions To Rate Hike, Bargain Hunting

Market Update for May 25

Midweek’s trading activities on the Nigerian Exchange were mixed and volatile, with the key performance All-Share Index rebounded against popular expectation, but in the midst of profit-taking, closing higher. It thereby halted three successive sessions of bear-run, even as players reacted to the recent hike in interest rates by the Central Bank of Nigeria’s Monetary Policy Committee.

Position taking in telecoms giants Airtel Africa, ahead of its dividend and Q1 earnings pushed the market up, and attracted buying interests in some other stocks, because as of midday, only four stocks were gaining in the face of negative breadth and mixed sentiments on a low traded volume. The index, however, retraced up on a northward movement, signaled strength and markup which, however, needs confirmation as trading opens on Thursday.

The renewed buying interests in blue chips resulted from bargain hunters taking advantage of pullbacks and panic selloffs to position as sector and portfolio rotation continue. This happened at a time market players are also digesting the macroeconomic reports, rate hike and earnings yields, ahead of May consumer price index 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 developments on the nation’s economic front, and in the face of monetary policy tighten of CBN to checkmate inflation.

Repositioning of portfolios on the strength of the decline in Q1 2022 GDP  to 3.11%, the rising April inflation rate at 16.82%, and the recent hike in MPR  to 13%, suggesting that the nation’s economy is currently at its late expansion point that may trigger an outflow of funds from equity space to fixed income instruments.

Meanwhile, some sectors that will benefit from this phase of the economy, and companies in sectors with potential to post stronger earnings and   high dividend yields that can serve as hedge against inflation, at a time the real return in the fixed income market is still negative, despite the rate hike. 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.

The bull resurgence halted three straight days of downtrend, just as selloff was witnessed across the major sectors of the market in the face of low volume patterns and earnings power. Tentatively, the continued uptick in the fixed income market yields and TB rates may extend the profit booking in the stock market till Friday, 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 $114.70 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, regardless of the rate hike to 13% as inflation is heading towards 18% before the end of the first half 2022.

However, despite the rebound of the market. This is the time to rely on your stop-loss and other trade tools effectively at this point of the new trend that extended the markup phase, especially when high cap stocks that control 70% of market capitalisation move up ahead of reactions to their earnings and expected dividend payments in May and June 2022.

The NGX index’s action broke out a strong resistance level to start a new uptrend on a low volume, as it trades below the ‘T-Line’ after testing 20-day moving average exponential. The market is relative strong as it again moves above the 2007 highs with a new strong and resistance level of 53,281.19bps region, while volatility persists and uptrends towards the next breakout sported around 53,009.76bps. Should the index break this point, the next visible resistance is 52,911.51bps.

Technically, the NGX index rebounded due to position-taking in telecoms stocks in the midst of impressive earnings releases 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.

Meanwhile, midweek’s trading opened on the downside and was sustained till midday  before rebounding on buying interests in blue chips, a situation that pushed the NGX’s index to an intraday high of 52,594.84bps from its lows of 51,574.46 points before closing above its opening figure at 52,591.41ps.

Market technicals were weak and mixed, even as volume traded was lower than the previous day in the midst of negative breadth and buying sentiment as revealed by Investdata’s Sentiments Report showing a 100% ‘buy’ volume. The total transaction volume index stood at 0.97 points, just as momentum behind the day’s performance was relatively strong with Money Flow Index looking down at 50.62pts, from the previous day’s 57.54pts, indicating that funds left the market despite closing in green.

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Index and Market Caps

The benchmark NGXASI, at the end of the day’s trading, gained 641.77bps, closing at 52,591.41bps, having opened at 51,949.64bps, representing a 1.24% growth. Similarly, market capitalisation rose by N346,40bn, closing at N28.35tr, from the previous day’s N28.01tr, which also represented a 1.24% appreciation in value.

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The upturn was driven by accumulation in the shares of Airttel Africa, Vitafoam, NGX Group, UACN, and Custodian Investment, among others. This impacted positively on Year-To-Date gain, which rose to 23.12%. Market capitalization growth stood at N6.83tr YTD, representing a 27.16% rise over the opening level for the year.

Bearish Sector Indices

Performance indexes across sectors closed lower, led by NGX Insurance which lost 3.70%, followed by Banking, Consumer goods, Energy, and Industrial goods with 2.13%, 1.33%, 0.76%, and 0.40% respectively.

Market breadth remained negative, as losers outnumbered gainers in the ratio of 40:11; just as activities in volume and value terms dropped, as investors exchanged 382.46m shares worth N4.23bn. Volume was driven by trades in UACN, UBA, Access Holdings, FBNH and Sterling Bank.

Cham and Airtel Africa were the best-performing stocks of the session, gaining 9.52% and 9.39%, at N0.23 and N1,608 per share respectively on market forces and dividend expectation respectively. On the flip side, Champion Breweries and PZ lost 10.00% and 9.92% respectively, closing at N3.42 and N11.25 per share, on profit-taking.

Market Outlook

We expect a mixed trend on decreasing selling pressure in reaction to interest rate hike and bargain hunters taking advantage of pullbacks in the midst the impressive earnings and corporate actions, ahead of March year-end earnings reports, and portfolio rotations. Also, market players have continued to digest the macro-economic data, among other developments to support an 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