Expect Mixed Trends, Sentiments On Portfolio Realignments, Soaring Inflation
Market Update for August 15
The nation’s equity market started the second week of August on a flat note and mixed sentiments, resisting further decline or correction as revealed by the NGX All-Share index’s action. Transaction volume was very high, extending the third successive sessions of bear transition in the face of low liquidity and continued interpretation of recent corporate earnings and actions by institutional investors and others.
Also on Monday, the consumer price index for the month of July was released by the National Bureau of Statistics (NBS), the high point of which was the inflation in Nigeria hit its 17-year high at 19.64% year-on-year, compared to the 18.60% figure posted in June 2022, after six consecutive months of soaring prices. The rate, however, moderated on Month-to-Month basis, as rate of change was insignificant on food and core inflation due to harvest season just kicking off and moderation in diesel price, coupled with global slowdown of commodities prices since greens started leaving the war zone.
The latest macroeconomic data is expected to trigger flow of funds in the financial markets to preserve value, this will lead to continued assets reclassification and portfolio diversification to stay ahead of inflation figure. As this will further put the fixed income market under pressure due to the fixed rate return which is already in real negative return because is below the prevailing rate of inflation.
The ongoing mixed sentiments is due to selloffs, pullbacks and position taking by bargain hunters taking advantage of the prevailing relatively low prices of stocks and blue chip companies relative to value. 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 indicating the possibility of a higher payout as a hedge against the soaring inflation.
The volume pattern in recent days and weeks reveals accumulation in some sectors and individual stocks, also selloffs in some other stocks and sectors as money flow index has also suggests that funds are entering the market despite the mixed trend and breadth. The prevailing market condition is creating ‘buy’ opportunities for discerning investors and traders that understand stock market dynamics, especially as these companies’ earnings performance beat market expectations to indicate their inherent value and the cheap state of these stocks.
Despite, the oscillating trend in the market, value investors are cashing in the pullbacks opportunities at this point, while continuing to digest the recent impressive corporate earnings that seems to impact the share prices and the market regardless of the low liquidity and confidence. It is noteworthy also that these numbers are revealing value and intrinsic upside potentials of these stocks.
While we note the effects of the increasing global volatility as a result of rising rates, inflation, geopolitical tension and slowing consumer spending, there are however, pockets of strength in some sectors amidst the better-than-expected earnings releases that offer insights into strong group stocks with value in the industries and companies in the various sectors. There is the possibility of sectors beating the next quarterly estimates and predictions, attaining their pre-pandemic performances as they deal with capacity in the midst of soaring costs and insecurity.
The NGX index’s action as at the end of Monday’s trading still trading below the ‘T line’ and the 20-day moving average, to formed a double bottom that signal reversal as sector rotation and portfolio rebalancing increased amidst the recent scorecards of many companies on the exchange. 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 reversal is underway depending on the earnings power.
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Oil prices extended it pulled backs to trade at $93.91 per barrel in the international market, following the china weak economic data and fear of recession that linger on increasing geopolitical tension. These are happening amidst the low factory activities in China, Japan and others that now signal demand fear, made worse by the weakened GDP in the US that may push the world’s largest economy into a technical recession. Already, central banks across the globe have continued to hike rates in the fight against rising inflation, in the midst of a sluggish economic growth data from China and others. All these have continued to influence the monetary policy options of central banks as they move to checkmate the impacts of the Russia-Ukraine conflict on the global economy to avoid the looming economic recession.
Meanwhile, Monday’s trading on the NGX started on the upside, but oscillated to pullback in the afternoon on selloffs in high cap stocks, a situation that pushed the NGX’s index to an intraday low of 49,373.13bps from its highs of 49,724.70ps, before closing slightly below its opening point at 49,657.33bps.
Market technicals were weak and mixed, with lower volume of shares traded than the previous day in the midst of breadth favoring bears on a buying sentiment as revealed by Investdata’s Sentiments Report showing 81% buy volume and 19% buy position. The total transaction volume index stood at 1.21points, just as impetus behind the day’s performance was relatively weak as Money Flow Index is looking down at 45.90pts, from the previous day’s 46.83pts, indicating that funds left the market.
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Index and Market Caps
At the end of Monday’s session, the benchmark NGXASI slipped by a marginal 6.74bps, closing at 49,657.33bps, after opening at 49,664.07bps, representing a 0.07% drop, just as market capitalization fell by N3.63bn, closing at N26.78tr, from the previous day’s N26.79tr, which also represented a 0.07% value loss.
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Monday’s downturn was driven by price adjustments in Seplat Energy and Flour Mills for dividends and selloffs in Presco, Dangote Sugar, Accesscorp, International Breweries, GTCO, FBNH, UBA and Sterling Bank, among others, which impacted mildly on Year-To-Date gain, which reduced to 16.25%. Market capitalization gain YTD also rose to N3.32tr YTD, representing a 20.21% rise over the opening level for the year.
Mixed Sector Indices
The sectorial performance indexes were mixed, as NGX Consumer Goods closed 0.33% lower, while NGX Industrial Goods led the advancers after gaining 0.17%, followed by Banking and Energy with 0.15% and 0.03% respectively. Just as NGX Insurance closed flat.
Market breadth turned as losers outnumbered gainer in the ratio of 17:12; just as transactions in volume and value terms were mixed, after players exchanged 210.84m shares worth N2.19bn, with volume driven by trades in Etranzact, FBNH, UBA, GTCO and Transcorp.
Neimeth Pharmaceuticals and Unity Bank were the best-performing stocks, gaining 9.29% and 4.65% respectively, closing at N1.53 and N0.45per share respectively on market forces. On the flip side, Presco and Multiverse lost 9.97% and 7.79% respectively, closing at N142.60 and N2.25 per share, purely on profit taking.
We expect the mixed trends and sentiments to continue on portfolio diversification and sector rotation on bargain hunting as players interpret July inflation of 19.64% and impressive half-year results in expectation of more company’s scorecards, especially from the first-tier banks in the midst of sovereign risks, as all eyes are on interim dividends.
We note also the flow of funds into the fixed income segment on the rate hike by the CBN, as sector rotation persists. Analysts are also focused on the lookout for Q2 GDP and flow of funds amid oil prices oscillation. 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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