Expect Mixed Trend, Positioning, Profit-Taking, On Macro-Economic Data, Q1 Earnings

Market Update for May 23

Profit-taking activities continued on the Nigerian Exchange on Monday, following which the composite NGX All Share Index closed marginally lower, extending its negative outing for the second consecutive session on a low traded volume and negative market breadth.

Selling pressure was relatively high during the session, even as the market was equally somewhat quiet as investors and traders await the outcome of the two-day Central Bank of Nigeria (CBN) Monetary Policy Committee (MPC) meeting which began on Monday. This anticipation happened in the midst headwinds around the macro economy and global developments, especially as regard the ongoing war between Ukraine and Russia that has since February continued to disrupt the global supply chain, leading to rising inflation and rates.

The pullback at the end of Monday’s trading was minimal, as traders continued to cash out their profits from the recent rally and uptrend that lasted for almost 22 trading sessions, as selling in some blue chip and medium cap stocks dragged the market down. This happened while market players continue to digest the latest inflation report, as well as earnings yields, while awaiting the decision of the MPC members on rate and other concerns related to activities around next year’s general election, which have started with the ongoing primaries of the various political parties.

As we have always said, price correction or pullback are 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 happenings on the nation’s economic front, and in the face of another slight decline in the CBN Treasury Bills’ primary market auction rates, especially the long-tenored 364-day.

The National Bureau of Statistics (NBS), on Monday released Nigeria’s GDP report, showing that the economy recorded a growth of 3.11% yoy in the first quarter of 2022, compared to the 3.98% of Q4 2021. This suggests that the economy contracted by 0.87% in Q1 2022, reflecting the impact of the high energy costs that slowdown business activity in the period under review.  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.

As noted earlier, selling pressure has persisted for two straight days on selloffs, just as position taking was witnessed across some major sectors, except for insurance and, industrial goods that recorded a loss in the face of low volume patterns and earnings power. Tentatively, the continued mixed direction of the fixed income market yields and TB rates may hurt the selloffs in the stock market, 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 $112 per barrel, on the news that Shanghai has signaled an end to the lockdown imposed due to the impact of the ravaging Coronavirus pandemic and recent cut in interest rate to support its economy. 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, which should be an indication that more funds may likely flow into the equity space as institutional investors balance their portfolios.

However, market corrections are here as a result of profit-taking, hence the need to rely on your stop-loss effectively at this point of the distribution phase signals continuation, especially when high cap stocks that control 70% of market capitalisation move down ahead of reactions to their earnings and expected dividend payments in May and June 2022.

The NGX index’s action pulled back again, remaining in the distribution phase, while trading above the ‘T-Line’ and 20-day moving average on a correction. The market is relatively strong, despite the pullbacks that started on Friday last week, since the strong support level is 51,805.41bps region, while volatility persists and uptrends towards the next breakdown sported around 52,717.88bps. Should the index break this point, the next visible support is 51,956.75bps.

Technically, the NGX index is already on a correction due to profit-taking and selloffs in the midst of impressive earnings 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.  As the market awaits a trigger after the MPC meeting.

Meanwhile, Monday’s trading opened slightly on the upside and oscillated for the rest of the session, on profit-taking across high, medium and low priced stocks, a situation that pushed the NGX’s index to an intraday low of 52,909.10bps from its highs of 53,009.50ps before closing below its opening points at 52,911.51.

Market technicals were negative and weak, as volume traded was lower than the previous day in the midst of breadth favoring the bears on a selling pressure as revealed by Investdata’s Sentiments Report showing a 98% sell position and 2% buy volume. The total transaction volume index stood at 0.70 points, just as momentum behind the day’s performance was strong with Money Flow Index looking down at 69.16pts, from the previous day’s 73.83pts, indicating that funds left the market.

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Index and Market Caps

At the end of trading, the benchmark NGXASI shed 68.45bps, closing at 52,911.51bps, after opening at 52,979.96bps, representing a 0.13% drop. Similarly, market capitalization fell by N36.91bn, closing at N28.53tr, from the previous day’s N28.56tr, which also represented a 0.13% value loss.

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Monday’s downturn was driven by profit-taking and selloffs in Presco, Lafarge Africa, UACN, NEM, GTCO, Stanbic IBTC, FBNH, Oando, Neimeth and Zenith Bank among others. This impacted mildly on Year-To-Date gain, reduced to 23.87%. Market capitalization growth stood at N6.57tr YTD, representing a 27.93% rise over the opening level for the year.

Mixed Sector Indices

Performance indexes across sectors were mixed, as NGX Insurance and Industrial goods closed lower by 2.32% and 0.09%, respectively while the NGX Energy led the advancers with a 0.28% gain, followed by Banking and Consumer goods with 0.10%, and 0.05% respectively.

Market breadth was negative, as losers outnumbered gainers in the ratio of 24:21; just as activities in volume and value terms were down, as market players exchanged  263.34m shares worth N3.55bn. Volume was driven by trades in Jaiz Bank, GTCO, Transcorp, Accescorp  and Zenith Bank.

Conoil and MRS Oil were the best-performing stocks of the session, gaining 9.95% and 9.93%, closing at N34.25 and N14.95per share respectively on market forces and sentiment respectively. On the flip side, Presco and GSPEC Plc lost 10% and 9.97% respectively, closing at N180 and N3.07 per share, on profit-taking.

Market Outlook

We expect a mixed trend, increased positioning and profit-taking, and portfolio rotations as market players digest the macro-economic data and Q1 corporate earnings release, ahead of March year-end 2022 audited financials with dividend announcements to support 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

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