Expect Mixed Trend On Profit-Taking, Amid March Year-End Earnings, Reactions To MPR Hike, Bargain Hunting

Market Update for May 26

The nation’s stock market on Thursday had a positive sentiment and improved momentum, closing higher and thereby extending its positive outing for a second consecutive session on rekindled buying interest. There was low traded volume in the face of positive market breadth and profit-taking halted amid panic selloffs driven on the back of the recent interest rate hike by the Central Bank of Nigeria.

Position taking occurred across major sectors of the market, including telecoms with MTN Nigeria and other stocks inched up, pushing the NGX All-Share index above the 53,000 basis points level, ahead of interim dividend and March full-year corporate earnings. We note that the market is set for another wave on the back of bargain hunting and impressive earnings. The index, however, extended its northward retracement to signal a new uptrend and markup which, nevertheless, needs confirmation.

The renewed buying interests in blue chips resulted from bargain hunters taking advantage of pullbacks and panic selloffs to position as sector and portfolio rotations continue. This happened at a time market players are also digesting the macroeconomic reports, rates hike, and earnings yields, ahead of the release of the May consumer price index, and other concerns related to next year’s ongoing general election activities, which began with the primaries of various political parties.

As we have always said, pullbacks and retracements are one of the market dynamics that create opportunities for new entrants as players plan to start jumping 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 tightening of CBN to check 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%, suggest 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 will benefit from this phase of the economy, including companies in those with the potential to post stronger earnings and high dividend yields capable of serving as a hedge against inflation, at this time when 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.

Oil price rebounded in the international market, as it trades at $117.70 per barrel, on a strong demand outlook as summer draws closer and on the news that Shanghai has signaled an end to its two-month 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 of 2022.

However, despite the market rebound, 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 above the ‘T-Line and 20-day moving average exponential. The market is relatively strong as it again moves above the 2007 highs with a new strong and resistance level of 53,774.61bps region, while volatility persists and uptrends towards the next breakout sported around 53,281.31bps. Should the index break this point, the next visible resistance is 53.275.49bps.

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.

Thursday’s trading opened on the upside and it was sustained throughout the session on buying interests in blue chips stocks and sectors, a situation that pushed the NGX’s index to an intraday high of 53,161.43bps from its lows of 52,587.01bps before closing above its opening figure at 53,151.32ps.

Market technicals were positive and mixed as the volume traded was lower than the previous day in the midst of breadth favoring the bears and buying sentiment as revealed by Investdata’s Sentiments Report showing a 98% ‘buy’ volume and 2% sell position. The total transaction volume index stood at 0.67 points, just as the impetus behind the day’s performance was relatively strong with Money Flow Index looking down at 49.04pts, from the previous day’s 50.62pts, indicating that funds left the market despite the up market.

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Index and Market Caps

At the end of Thursday trading, the NGXASI gained 559,91bps, closing at 52,591.41bps, having opened at 52,591.41bps, representing a 1.06% growth. Similarly, market capitalisation rose by N301.44bn, closing at N28.65tr, from the previous day’s N28.35r, which also represented a 1.06% value gain.

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Meanwhile, Thursday upturn was driven by accumulation in the shares of MTNN, Guinness, Unilever, Lafarge, and UACN, among others. This had a positive impact on Year-To-Date gain, which rose to 24.43%. Market capitalization growth stood at N7.34tr YTD, representing a 28.51% rise over the opening level for the year.

Bullish Sector Indices

Performance indexes across sectors were green, except for the NGX Oil/Gas which lost 0.30%%, while NGX Banking led the advancers after gaining 1.22%, followed by Consumer goods, Insurance, and Industrial goods with 0.93%, 0.42%%, and 0.42% respectively.

Market breadth turned positive, as gainers outnumbered losers in the ratio of 27:11; just as transactions in volume and value terms dropped, as stockbrokers crossed 266.18m shares worth N5.12bn. Volume was driven by trades in Transcorp,  Access Holdings, GTCO, Jaiz Bank and Universal Insurance .

Industrial & Medical Gas and Champion Breweries were the best-performing stocks of the session, gaining 10% and 9.94%, at N11.00 and N3.76 per share respectively on market forces and sentiment. On the flip side, NPF Microfinance and UACN lost 9.90% and 9.69% respectively, closing at N1.82 and N11.65 per share, on profit-taking.

Market Outlook

We expect a mixed trend on profit taking and reaction to interest rate hike, Just 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