Expect Slowdown In Profit-taking, Selloffs, As Investors Digests Latest Economic Data, Global Trends

Market Update for June 16

The negative outing on the nation’s stock market continued on Thursday as profit-taking and selloffs persisted due to portfolio readjustments and repositioning in reaction to the recent rate hike in the domestic environment and international markets. The market extended its pullbacks for a third consecutive session to break down another support level, just as market players continue to digest the May inflation data and impact of the US Feds’ 75 points rate hike, the most aggressive since 1994 on the global markets.

The benchmark NGX All-Share index closed lower to extend the decline phase of the market, on a low traded volume and negative market breadth, even as sectorial performance for the session witnessed a bearish sentiment across board.

Investors and traders across the globe are worried over the rising inflation and impending global economic recession, even as all eyes are on the world and even domestic economic data, while selling sentiments continue across some sectors, while funds flow into fixed income instruments from risk-averse investors due to the increase in interest rate and the May inflation rate which soared to 17.71%, an 11-month peak since June 2021, according to National Bureau of Statistics (NBS).

The release of May consumer price index report coincided with the market pulling back to enter its decline phase, and the NGX index action trading below the 52,587.01 basis points. This calls for a change in trading strategies, ahead of the quarter-end window dressing, and half-year earnings reporting season. This hot economic and market news should guide investors and traders when picking stocks in this season and beyond, especially amidst this pre-election year volatility and uncertainties, even as fixed income market players are further threatened by the inflation rate that has been on the increase since November 2021, rising from 15.4% to 17.71%, just a few points shy of the 17.75% recorded in June 2021. This is driven by the sustained rise in food prices, given the nation’s dependence on imported foods, especially grains. Also, there is the impact of rising insecurity, diesel prices, and the shortage of US$, among others, all of which have kept inflation at double digits since 2016.

To avoid the old mistake and costly losses of the past in this changing market momentum, we invite you to attend the Investdata Q3 Master Class, ahead of the half-year earnings reporting season and general elections. We note that the major political parties just concluded their primaries to select presidential candidates ahead of the February 2023 general election. Current developments in the market do suggest that discerning investors are gradually becoming greedy, while others are fearful, while actively buying more, as seen in the recent market corrections. Despite the selling sentiment witnessed at the close of trading, it is time to go shopping for undervalued stocks, sectors and the next insider playing opportunity.

Oil price are still relatively down in the international market, oscillating to trade at $119.70 per barrel, after the historic interest rate hike by the Fed 75 points, after crude prices have touched its two-month high of $124.60 on the reopening of China provinces locked down due to Covid 19, amidst Saudi Arabia’s July futures price rise.  Also, the EU plans to enforce the embargo on the importation of Russian oil, even as these chronic high energy prices are killing the global economy, 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 economic recession. The nation’s soaring inflation is a potent threat to the fixed income market and investment yields, which should be an indication that there will be a reversal of funds flowing back to equity space in no distance time as institutional investors balance their portfolios.

Technically, the NGX index action is correcting at this decline stage of the market, trading below the ‘T-Line’ and 20-day moving average, as the market remains relatively strong, despite the negative outing it started the week. The strong support level has been within the 52,000-basis points region, while volatility persists and corrects towards the next breakdown is sported around 52,212.71bps. Should the index break this point, the next visible support is 52,012bps.

The possibility of the trend being sustained is high and a function of market forces and improved economic conditions during this month and beyond, following which we advise investors to play defensive stocks and reduce investment risks around the market. This, they can do by effectively using your stop-loss and trading your plans always by allowing your entry and exit strategies to guide you.

Meanwhile, Thursday’s trading opened on the downside and was sustained for the rest of the session, on profit taking and selloffs across the financial, telecoms and energy stocks, a situation that pushed the NGX’s index to an intraday low of 52,374.04bps from its highs of 52,783.52ps before closing below its opening points at 52,411.09bps.

Market technicals were negative and mixed, as volume traded was higher than the previous day in the midst of breadth favoring the bears on a selling sentiment as revealed by Investdata’s Sentiments Report showing 91% sell position and 9% buy volume. The total transaction volume index stood at 0.59 points, just as momentum behind the day’s performance was relatively weak as Money Flow Index is looking down at 40.60pts, from the previous day’s 46.39pts, indicating that funds left  the market.

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Index and Market Caps

The key performance NGXASI at the close of Thursday’s trading lost 358.24bps, closing at 52,411.09bps, after opening at 52, 775.40bps, representing a 0.69% decline. Similarly, market capitalization fell by N197bn, closing at N28.25tr, from the previous day’s N28.45tr, which also represented a 0.69% value loss.

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Thursday’s downturn was driven by selloffs and profit-taking in Airtel Africa, BUA Foods, FBNH, Zenith Bank, NGX Group, GSK, Dangote Sugar, Champion and UBA, among others. This impacted negatively on Year-To-Date gain, dragging it to 22.70%, while market capitalization growth stood at N6.14tr YTD, representing a 26.72% rise over the opening level for the year.

Bearish Sector Indices

Performance indexes across sectors were down, except for the NGX Consumer Goods index that closed slightly higher by 0.01%, while NGX Energy led the decliners after losing 0.83% followed by Banking, Insurance and Industrial goods with 0.62, 0.28% and 0.01% respectively.

Market breadth was negative, as losers outnumbered gainers in the ratio of 22:12; just as activities in volume and value terms were down, after stockbrokers traded 188.09m shares worth N2.36bn, with volume driven by trades in Sterling Bank.  Zenith Bank, UBA, Transcorp and FBNH.

Linkage Assurance and Courtvile Business Solution were the best-performing stocks after gaining 9.32% and 8.00%, closing at N0.56 and N0.54 per share respectively on market forces. On the flip side, Conoil and BUA Foods lost 10% and 9.97% respectively, closing at N28.80 and N53.78 per share, on profit taking and selloffs.

Market Outlook

We expect a slowdown in profit taking and selloffs as players digests latest economic data and global trend of rates hike in rising inflation environment ahead of quarter end window dressing and interim dividend season in Nigeria, while some March year-end audited accounts companies hit the market any moment from now. 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 expecting the inflation report to support recovery in the new July 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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CRO|Investdata Consulting Ltd





Tel: 08028164085, 08179547605