Expect Mixed Trends On Reactions To Inflation Data, Policy Concerns, Ahead Of Q3 Earnings

Market Update for October 16

Trading activities on the Nigerian Exchange started the week on a negative note, as profit booking resurfaced after closing higher last week on bargain hunting and portfolio rebalancing for the final quarter of 2023 and corporate earnings expectations. Despite the pullback, the NGX index’s action continued its sideways movement, remaining on the consolidation range amid the low traded volume and negative market breadth.
With the low volume of transaction, an indication of the lack of supply and possibility of smart money marking up prices, especially in a highly Inflationary environment as revealed by the latest consumer price index. According to the latest data by the National Bureau of Statistics for September inflation touched its 18-year high at 26.72% year-on-year from August position of 25.80% on food supply shortage, regardless of ongoing harvest season and pressure on the exchange rate now pushing prices on daily basis. The surprising thing here is that inflation on a Month-on-Month basis rose by 2.5% in September when compared to the 3.8% recorded in August. This should be a slight reflection of the ongoing harvest season.
Amid policy somersaults and the clear lack of proper preparations before any policy adjustment and pronouncements is dampening confidence and market momentum. There seem no indication as to where the fiscal and monetary authorities are headed for the purpose of medium to long-term planning by businesses. Market players have also continued to interpret and digest the impact of the Central Bank of Nigeria’s decision to lift the ban placed on 43 items at a time when the challenges that led to the bank, especially the short supply of FX is worsening. There are also concerns over the effects of the decision on the nation’s manufacturing and production sectors, especially in the face other hiccups that impede their ability to compete with imported substitutes, thereby posing a threat to the local industries and implications jobs at a time cost of raw materials and power is already overbearing.
However, investors continue to take advantage of the ongoing oscillation and pullbacks in some major sectors of the market to reposition their portfolios as the earnings reporting season kicks off any moment from now. Also, the market awaits positive catalysts in the form of policy statements from economic managers to boost confidence and perception, even as the ongoing decline in the fixed income market rates and yields in the midst rising inflation, has gradually triggered flow of funds into the equity space, as seen in the increased demand for banking stocks, among others that are looking up ahead of their Q3 financials.
The ongoing geopolitical tension will continue to drive global and domestic market volatility, so investors and traders anywhere in the world should factor in this uncertainty to their trading and investment plans always. The NGX index’s action still trades above the T-line and 50 DMA, as companies continue to announce their closed period for Q3 financials expected to start pouring in any moment from now for early filers. The index’s action stayed flat after the previous session retracement.
Amid raging concerns over macroeconomic headwinds in the country today, Q3 earnings expectation, there are other concerns such as the mixed outlook in fixed income yields as the bond market remains bearish, with the Naira crossing the N1,000/US Dollar threshold, and rising inflation, among others. Owing to the cautious environment pervading the nation’s equity market, it is important that you trade and invest wisely ahead of events and factors that will shape the market in this last quarter of this year. Despite the mixed sentiment witnessed so far, the market’s big uptrend remains intact, in the midst of a material shift in the index and the ongoing volatility.
Despite the up and down movement witnessed on the NGX at the end Monday’s trading, we expect that investors would trade consumer and industrial goods stocks with caution, while repositioning portfolios, targeting services industry stocks with strong fundamentals and earnings power capable of supporting price, and higher dividends payment at the end of the year. The candlestick formation at the end of the session signals a bearish top pattern that supports downtrend, but needs to confirm as the market opens today, just as the 2008 resistance level turned another strong support level to watch.
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Oil price oscillation continued, inching up to trade at $89.70 per barrel in the midst of the ongoing conflict in the middle east, which world leaders are moving to contain. There is, however, the Inflationary waves that may affect crude demand, at a time the Russia-Ukraine war has lingered for almost two years, and remains a major concern, aside the prevailing high interest rate regime and slowing inflation. Also, supply tightened due to the Russia-Ukraine This up and down movement in oil price, has continued to drive volatility across markets.
Meanwhile, Monday’s trading opened slightly in the upside, and oscillated before pulling back in the late afternoon on selloffs in high priced stocks and others, a situation that pushed the Index to an intraday low of 67,022.49bps from its highs of 67.303.23ps, before closing below its opening figure at 67,037.93bps.
Market technicals were negative and mixed with a lower volume traded, when compared to the previous session, in the midst of breadth favoring the bears on a selling sentiment as revealed by Investdata’s Sentiments Report showing 5% buy position and 95% sell volume. The total transaction volume index stood at 0.44 points, just as the impetus behind the day’s performance was weak, with Money Flow Index reading 46.32pts, from the previous day’s 39.50pts, indicating that funds entered the market. Despite the market close lower.
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Index and Market Caps

The benchmark NGXASI, at the end of Monday’s trading, fell by 162.76bps, closing at 67,037.93bps, from its 67,200.69bps opening level, representing a 0.24% drop. Market capitalization also lost N89.3bn, closing at N36.83tr, from the previous day’s N36.921tr, which also represented a 0.24% value loss.
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Monday’s session downturn was driven by selloffs and profit taking in Okomu Oil, Stanbic IBTC, Oando, Wapco, Eterna and Cutix, among others. This impacted negatively on Year-To-Date gain which reduced to 30.80%, while Market Capitalization YTD gain stood at N7.89tr, representing a 32.89% rise above its opening level for the year.

Mixed Sector Indices
Sectoral performance indexes were mixed, as NGX Banking and Consumer goods closed higher by 0.94% and 0.39% respectively, while NGX Insurance led the decliners after losing 0.44%, followed by Energy and Industrial goods with 0.27% and 0.06% respectively.
Market breadth turned negative as losers outnumbered gainers in the ratio of 22:19, while transaction in volume and value terms were down, after stockbrokers crossed 216.07m shares worth N3.55bn, driven by trades in UBA, Fidelity Bank, Aiico, Dangote Sugar and Transcorp.
Royal Exchange Assurance and CHI Plc were the best performing stocks, gaining 8.5% and 7.0% respectively, closing at N0.51 and N1.23 per share respectively, on market forces and sentiment. On the flip side, Stanbic IBTC and Okomu Oil lost 10% each, closing at N72.00 and N236.80per share, purely on the back of selloffs and profit taking.

Market Outlook

We expect mixed sentiments to continue on reaction to latest CPI of 26.72%, CBN decision on 43 items, bargain hunting and portfolio repositioning ahead of Q3 corporate earnings reports in the face of sector rotation, with all eyes are on the fiscal and monetary authorities to give direction of the government reforms and policies so far.
However, pullbacks are creating ‘buy’ opportunities amidst the economic reforms of the government, just as more policy pronouncements and economic managers hit the ground running, a situation expected to offer investment direction eventually.
We note that discerning investors have continued to target fundamentally sound companies and defensive stocks to protect their portfolios. Any pullback at this point may add more strength to upside potentials. As such, investors should take advantage of price rally to take profit, while also looking at the trends and events across the globe and domestically.

Ambrose Omordion
CRO|Investdata Consulting Ltd
Tel: 08028164085, 08179547605