Market Update for the Week Ended September 16 and Outlook for September 19-23
The bear dominance extended for the second successive week in the month of September, amid selloffs across major sectors and blue chip stocks that dragged the composite NGX All-Share index lower on a low traded volume and negative market breadth due to the continued repricing of equities on the Nigerian Exchange.
The low liquidity and oscillating yields in the fixed income market has left the equity space relatively quiet since the back to back rate hike by the Central Bank of Nigeria’s Monetary Policy Committee meeting in the previous months. As reflected in the volume of transactions which indicated the absence of institutional players like pension administrators and fund managers. On the strength of macroeconomic reports, the low supply in the market indicates that smart money can mark-up the price any time from now, but wait for a confirmation.
The domestic institutional investors had sustained post Covid-19 uptrend, accounting for 60.0% of transaction year-to-date, as against the 46.7% recorded in the comparative period of 2021. Nigerian pension fund administrators are the largest part of this group, with total Assets Under Management of N14.36trn as of July 31, 2022.
However, data from the pension industry regulator shows that the pension administrators’ domestic equity exposure fell to 6.4% in July 2022, the lowest since November 2020, from a 15-month high of 7.1% at the end of April. With what looks like pension funds choosing to invest inflows outside the stock market, what could this mean for equity returns going forwards?
First, we looked back at pension funds’ history of exposure to domestic equities and found that Nigerian pension funds have essentially halved their equity exposure today, from 11.9% levels at the end of 2013.
As the August inflation report confirmed the nation’s entry into stagflation after crossing the 20% mark to 20.52%, the highest in 17 years, from 19.64% in the month of July, thereby throwing the real rate of returns in fixed income instrument further into the red. This has left many pension and fund managers worried, forcing them to reposition their portfolio by seeking to hedge in sectors and individual stocks.
Meanwhile, market volatility continues to support technical traders in the midst of prevailing buying sentiments, which was due to bargain hunters taking advantage of the relatively low prices of stocks and higher earnings yields that signals 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 stocks as hedge against the soaring inflation.
The NGX index’s action on a weekly chart it is still trading below the ‘T line’ and 50-day moving average, as selling sentiment continued across the sectors. Portfolio rebalancing has increased in the midst of interim dividend payments. 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 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.”
Movement Of NGXASI
The NGX had a bearish week of four sessions of down markets and one day in the opposite direction, amid interim dividend corporate actions from the banks, as banking stocks suffered losses to drive the oscillation and pullbacks that create opportunities for players to reposition their portfolios, amid interpretation and analyses of macroeconomic data and earnings released recently.
Trading for the week opened on a negative note, halting the previous session’s gain, by 0.01%. This trend rebounded on Tuesday when the NGX index lost 0.04%, before turning negative again at the midweek when it lost 0.1%. This was extended to Thursday and Friday as the market shed 0.07% and 0.16% respectively. These brought the week’s total loss stood at 0.44%, compared to the previous week’s 0.73% loss.
Consequently, the key performance NGX All-Share Index lost 219.73 basis points, closing at 49,585.72bps, compared to the week’s 49,682.15bps opening level, after touching an intra-week high of 50,056.30bps and a low of 49,624.30bps. Market capitalisation also lost N119bn during the period, closing at N26.68tr, from the previous week’s N26.80tr, which also represented a 0.44% value loss.
During the period under review, Low and medium cap stocks dominated the advancers table that attracted buying sentiments amid volatility and position taking in value stocks and others. Also notable is the fact that investors are taking advantage of the relatively low price to position.
Market breadth for the week turned positive as gainers outnumbered losers in the ratio of 43:27 on buying sentiments as revealed by investdata sentiment report showing 98% ‘buy’ volume and 2% sell position. Money Flow Index was looking down at 27.69bps from the previous week’s 31.29 points, an indication that funds left the market on a weekly chart to reflect the high yield in fixed income instrument and others, just as daily time frame money flow index was up, revealing that funds enter the market on day chart.
The NGX index action on a weekly chart extended its loss on above average traded volume to signal buy opportunity, as rally continued on a daily time frame to trade above the T line on a buying sentiment and positive momentum, as the market remains strong in the midst of increased volatility and low liquidity. We note also that the index is trading slightly below the ‘T’ line and 20-day moving average on a weekly time frame to signal possibility of breakout, depending on liquidity and reaction to earnings report.
Bullish Sectoral Indices
Sectorial performance indexes for the week were in green, as NGX Consumer goods led the package after gaining 2.01%, followed by Industrial goods, Banking, Energy and Insurance with 1.36%, 1.21%, 0.65% and 0.05% respectively.
Activities in volume and value were mixed, after stockbrokers traded 1.20b shares worth N12.92bn, compared to the previous week’s 914.43m units valued at N15.26bn, with volume driven by Financial Services, Services, ICT and Consumer goods sectors. Specifically, the week’s volume was driven by trades in Sterling Bank, Fidelity, Accesscorp, Etranzact and Dangote Sugar.
Vitafoam and Etranzact were the best-performing stocks for the week after gaining 16.26% and 16.23% respectively, and closing at N23.60 and N2.65 per share on low price attraction and market forces. On the flip side, Unilever and McNichols lost 9.63% and 9.46% respectively, at N12.20 and N0.67 per share, purely on profit taking and selloffs.
Outlook for the week
We expect a mixed trend on price adjustment in banking stocks like Zenith Bank and Stanbic IBTC in the face of profit taking and low liquidity, as market players digest macroeconomic data and half-year corporate earnings released recently. Also, as investors are repositioning their portfolio on the strength of earnings reports. 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 interim dividend-paying stocks.
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