Expect Reversal On Bargain Hunting, Amid Reactions To Impressive H1 Results, Hope Of More Scorecards

Market Update for August 9

The nation’s stock market had mixed session on Tuesday, recording a sharp decline, following selloffs in blue chips- Dangote Cement, and MTNN, among others thereby extending the bear transition for a second consecutive session on a low traded volume and negative market breadth in the midst of impressive corporate earnings and low liquidity.

The seeming pullbacks in highly priced stocks due to the market perception and reactions to the prevailing market condition that has created ‘buy’ opportunities for discerning investors and traders that understand stock market dynamics, especially as these companies earnings performance had beat market expectations to indicate value and cheap state of these stocks.  Despite the mixed numbers posted by Dangote Cement, the stock remain attractive on the back of positive fundamental news for its sector and expected impact of its cross boarder operations. On the other hand, MTNN looks good at the current price ahead of the qualification date for the N5.60 interim dividends in the midst of a better-than-expected half-year result posted by the company, making its shares attractive and cheap for discerning investors.

The market confirmed its decline phase at the end of Tuesday’s trading, breaking down the strong support level of 49,603.12 points on a selling sentiment as the benchmark NGX All-Share index closed lower on a downtrend pattern to test 49,342.60 points. Market players seem cautious at this point, while continuing to digest the recent impressive corporate earnings that are yet to impact the share prices and the market due to low liquidity and confidence, even when these numbers are revealing value and inherent upside potentials in these stocks.

The increasing global volatility as a result of rising rates, inflation, geopolitical tension and slowing consumer spending. However, there are 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 All-Share index’s action currently trades below the 50,000 mark, ‘T line’ and the 20-day moving average, on market correction and pullbacks to attract bargain hunters 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 continued to oscillate after pulling back to their six-month low on worrying signal from oil traders of a European exposure to recession to trade at $95.38 per barrel in the international market, following 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.

Tuesday’s trading started slightly on the upside and oscillated sharply throughout the trading session, pulling back on selloffs and profit-taking in large cap stocks, a situation that pushed the NGX’s index below 50,000 mark to an intraday low of 49,342.60bps from its highs of 50,489.73ps, before closing below its opening point at 49,350.71 bps.

Market technicals were negative and mixed, with lower volume traded than the previous day in the midst of breadth favoring bears on selling pressure as revealed by Investdata’s Sentiments Report showing 99% sell volume and 1% buy position. The total transaction volume index stood at 0.76points, just as energy behind the day’s performance was weak as Money Flow Index is looking flat at 33.36pts, from the previous day’s 31.87pts, indicating that funds entered the market, despite down market.

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Index and Market Caps

The composite  index NGXASI, at the close of Tuesday trading  fell by 1,139.02bps, closing at 49,350.71bps, after opening at 50,489.73bps, representing a 2.30% decline, just as market capitalization fell by N614.36bn, closing at N26.62tr, from the previous day’s N27.23tr, which also represented a 2.3%  value loss.

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Meanwhile, Tuesday’s downturn was driven by profit-taking and selloffs in Dangote Cement, MTNN, Stanbic IBTC, Oando, Champion, Honeywell, Nahco, UBA, International Breweries and Mansard, among others, which impacted negatively on Year-To-Date gain, which reduced to 15.53%.  Market capitalization gain YTD also fell to N3.10tr YTD, representing a 19.29% rise over the opening level for the year.

Mixed Sector Indices

The performance indexes across sectors were mixed, as the NGX Banking and Insurance closed higher by 0.60% and 0.24% respectively, while NGX Industrial goods led the decliners after losing 4.83%, followed by Consumer goods and Energy with 0.29% and 0.27% respectively.

Market breadth, remains negative as losers outnumbered gainers in the ratio of 16:12; just as activities in volume and value terms were down, after stockbrokers crossed 140.61m shares worth N1.60bn, with volume driven by trades in Japaul Gold, Aiico, Sterling Bank, Sovereign Trust Insurance and GTCO.

NEM Insurance and Prestige Assurance were the best-performing stocks, gaining 10% each, closing at N3.74 and N0.44 per share respectively on market forces. On the flip side, Cornerstone Insurance and Dangote Cement lost 9.33% and 9.06% respectively, closing at N0.68 and N241.00 per share, purely on profit taking and selloffs.


Market Outlook

Expect a reversal on bargain hunting as players react to 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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Ambrose Omordion

CRO|Investdata Consulting Ltd





Tel: 08028164085, 08179547605