Expect Mixed Trends, As Investors Bet On March Year-End Earnings, MPC Meeting Outcome

Market Update for the Week Ended May 20 and Outlook for May 23-27

The nation’s stock market witnessed a string of profit-taking last week which halted five consecutive weeks of bull-run, as prices of many equities pulled back, especially blue-chips that had rallied recently. The benchmark Nigerian Exchange Limited (NGX) All-Share index, therefore, closed marginally lower on a very high transaction volume, but negative breadth, amid selling sentiments across some sectors. There was position taking noticed in the insurance and industrial goods sectors, among others, and portfolio rotation continued.

Despite profit booking, the high-priced stocks that control the 70% of market capitalization, pushed the index to breakout 2007 highs, as it tested 53,774.61 before pulling back on selling pressure, trading above its seven-day moving average. In the period under review also, the share prices of Consolidated Hallmark Insurance, Living Trust, May & Baker were adjusted for the two kobo, six kobo and 30 kobo dividends recommended by their boards.

As we have always said that market correction, pullbacks, and profit-taking are part of stock market dynamics and patterns that every investor and trader should understand and have strategies to hedge against. Also, profit from these market movements was expected at any given time. As such, the best trading strategy against further market decline is to position in a strong basket of stocks and sectors, while taking advantage of bullish trends too.

The benefits of hedging are great, but the secret to making money over the long term is not profitable hedging. Hedging enables you to reduce your draw dooms in bear markets, so you have a bigger account size to grow when the correction or pullback is over.

Hedging against inflation or a down market also enables you to be active in the market when the movement turns up, so you don’t miss the next bull action because you did not know when to jump in. Here, let me make it clear, I am not suggesting that you should buy and hold through a bear market (even if you have a hedge). In many bear markets, just as our market is trying to correct from the recent bull-run, there are often sectors within that are in good tradable bullish trends at these different seasons or market cycles.

In the market today, there have been sectors of the market that have done well. So there is a strategy that works in bull and bear markets and is constantly creating new big trend trades. Simply put, the strategy of investing in market-leading sectors at the right time. Put differently, being in the right sector at the right time is often the difference between whether you trade profitably, and have a great year, or one filled with losses.

Already, all eyes are on the outcome of the Central Bank of Nigeria’s two-day Monetary Policy Committee meeting next week holding on Monday and Tuesday, with analysts betting already that possibility of a rate hike is slim, like the Bank of Japan (BOJ) that left its rates unchanged, and instead increased stimulus to support the economy in the face of rising global inflation a rising from the lingering war between Russia and Ukraine. China, in its own reaction cut rates as it prepares to reopen some of its provinces that were locked down due to the covid-19 resurgence, a situation that also contributed to the surge in crude oil price during the week.

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Movement Of NGXASI

It was a bearish week, as the NGX index recorded four trading sessions of down markets and closed northward just once due to price appreciation in telecoms giant- MTN Nigeria which touched a new 52-week high at N270 each on Thursday before succumbing to profit-taking.

Trading for the week opened on a negative note, short-living the previous day’s uptrend after the index lost 0.21% on Monday, a situation that was extended on Tuesday and midweek when the market pulled back further by 0.48% and 0.07% respectively. There was a rebound on Thursday, with the market closing 1.05% higher on strong buying interests in the industrial goods and telecoms sectors. This trend was reversed on Friday when the index shed 0.55%, bringing the week’s total loss to 0.22%, compared to the previous week’s 4.25% gain.

As market players cash out their gains from the market rally, market capitalization also lost a cumulative N64bn in the period, slowing down the uptrend and recovery. This price correction dragged market indicators southward, with year-to-date return reducing to 24.03%, due to sell sentiment in value and growth stocks.

The entry of smart money into the equity space has slowed down as institutional investors digest the nation’s macroeconomic data and the expected outcome of the MPC meeting, especially regarding the possibility or not of a rate hike amid the rising inflation and other geopolitical concerns. This is regardless of the low participation in the Nigerian market by foreign investors, according to the latest data by the Nigerian Exchange. This means that domestic portfolio investments are on the rise.

Specifically, the composite index lost 118.58 basis points to close the week at 52,979.96 bps, after touching an intra-week low of 52,717.88bps, from its highs of 53,774.61bps. Recall that the week opened with the index at 53,098.46bps, just as market capitalisation closed at N28.56tr, from the previous week’s N28.63tr, which also represented a 0.22% value loss.

During the week of profit-taking and selloffs, low and medium cap stocks rallied to dominate the top advancers’ table, amid selling sentiment and repositioning of portfolios and release of more March year-end accounts, as investors continue taking advantage of pullbacks and high earnings yields  to accumulate positions.

Market breadth for the week turned negative, as losers outnumbered gainers in the ratio of 37:42 on selling sentiments, as revealed by the investor sentiment report showing 75% ‘sell’ volume and 25% buy position. Money Flow Index was up at 57.47bps from the previous week’s 55.28 points, an indication that funds enter the market on a weekly chart to confirm the inflow of funds into equities, while on daily time frame money flow is looking down to revealed that funds had left the market on profit taking.

The NGX index’s action remained strong on a weekly time frame, but pulled back on the daily charts, trading above the ‘T’ line on an inverted hammer candlestick formation that signals reversal of an uptrend after testing a major strong resistance levels of 53,774.61 points on a very high traded volume to remain above the 20- and 50-day moving average to reveal strength. The candlestick formation, at the end of the week, showed that the market is losing it fuel or momentum, as players digest the Q1 numbers already released, macrocosmic data and other factors ahead of MPC meeting outcome to reposition their portfolios for Q2 earnings seasons.  The candlestick pattern indicates a possible price correction or continuation of the trend, depending on market forces in the new week as last Friday’s trading pattern revealed sellers are in control.

Mixed Sectoral Indices

Sectorial performance indexes for the week were mixed, as NGX Insurance and Energy indexes   closed 3.63% and 0.30% higher respectively, while the NGX Banking led the decliners, after losing 1.24%, followed by Consumer and Industrial Goods with 0.98% and 0.61% respectively.

Activities in volume and value terms were up as players exchanged 3.02bn shares worth N31.78bn, compared to the previous week’s 1.82bn units valued at N27.19bn, with volume driven by Financial Services, Conglomerates, and Consumer goods sectors. Specifically, the market witnessed heavy volume movements in FCMB, Jaiz Bank, Transcorp Plc, GTCO and International Breweries.

McNichols and Transcorp Hotel were the best performing stocks of the week, gaining 58.96% and 20.70% respectively, closing at N2.13 and N5.89 per share on the recommendation of a bonus issue of one-for-eight shares and market forces. On the flip side, Royal Exchange Assurance and Academy Press lost 25.49% and 18.54% respectively, at N1.14and N1.23 per share, purely on profit-taking.

Outlook for the week

We expect a mixed trend on market reaction to the impressive audited financials of Presco, March year-end earnings expectations and MPC meeting outcome next week. As market players continued to digest Q4 and Q1 corporate earnings and economic data to reposition their portfolios for Q2 earnings season. Also, investors and traders continue reacting to the earnings power, as the revaluation of quoted companies on their earnings performance and growth prospects continue. We note that income investors have sustained buying into interim dividend-paying stocks.

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Ambrose Omordion

CRO|Investdata Consulting Ltd




Tel: 08028164085, 08179547605