Expect Trend Reversal, On Reactions To Influx Of Corporate Actions, Audited Accounts

Market Update for March 29

It was a mixed and volatile session on the Nigerian Exchange Tuesday, as the negative outing continued amid ‘sell’ sentiment and low traded volume, despite the seeming demand for stocks in the early hours of the session.

The negative sentiment across the major sectors, has resulted in negative breadth, even as the influx of 2021 audited financials with dividend announcements are yet to impact the market and the share prices. Companies that presented their audited financials during the session and recommended dividend included BUA Cement, which is offering a N2.60 dividend; NEM Insurance, 22 kobo; Ecobank Transnational Incorporated, $0.0016, Infinity Trust Mortgage, 5 kobo; and May & Baker, 30 kobo. Others that submitted their full year accounts are Meyer, Sunu Assurance, Sovereign Trust Insurance, and Capital Hotel.

Tuesday’s down market has extended the decline phase of the market, despite being on a lesser momentum that signals reversal of trend on a low traded volume and negative breadth, which, however, needs to be confirmed, especially with bargain hunters still in the market cherry-picking fundamentally sound stocks. There is also the expected market reaction to the dividend and numbers released ahead of quarter-end window dressing and the deadline for submission of 2021 audited accounts and corporate actions.

Players continue to keenly observe the nation’s economic developments and what is happening in the fixed income market with yields and rates becoming mixed and flattish. Already, all eyes are on the plans by Central Bank of Nigeria (CBN), as announced during the last Monetary Policy Committee (MPC) meeting to fulfil its promised intervention in the distribution of premium motor spirit and diesel. The aim is to ease the pains of the scarcity among manufacturers, SMEs and households across the country, in the face of the epileptic power supply.

The late hour rush by listed companies to file their accounts has started on Tuesday, as more are likely to hit the market at the midweek, even as notifications of closed periods and board meetings to consider Q1 2022 financials have started, ahead of the Q1 earnings season have increased. We expect bargain hunters to take advantage of the pullbacks to position in expectation of dividend qualification dates, end-of-quarter window dressing by fund managers and repositioning of their portfolios ahead of Q1 actual numbers.

With the selloffs and profit-taking at the close of Tuesday’s trading, investors need not panic at this level but traders should watch their stop-loss and profit targets to adjust positions. Tentatively, the continued mixed direction in the fixed income market yields and declining rates of Treasury Bills may trigger flow of more funds to the equity space, as noticed at the end of Tuesday’s session. The ongoing war in Ukraine, and panic selloffs is having its affect the market in recent times, just as investors continue to keep their gaze on the 2023 general elections, amidst uncertainty and the heightening insecurity in the country, following Monday’s attack on a train with over 930 persons onboard in Kaduna.

The eastern European crisis and rising cases of COVID-19 in China, which resulted in the lockdown in some provinces have continued to influence commodities prices, especially crude oil as it now oscillates in the international market, trading below $100 per barrel, after touching $120.27 in the previous days. This has continued to push production costs up, worsening inflationary pressure across the globe and weakening economic outlooks for 2022 and 2023, thereby influencing the monetary policy of central banks as they move to checkmate the impacts of the Russia-Ukraine conflict on the global economy to avoid a global recession.

These pullbacks as seen in the NGX index’s action during the earnings reporting season have created ‘buy’ signals for smart and discerning traders. However, we warn that market corrections are not over yet, hence the need to rely on your stop-loss effectively. This is because the oscillating trend signals that a major uptrend is underway, especially when it gets to the level where it is considered good enough for fixed income market players, among others, to jump back into equity positions.  

The candlestick formation at the end of trading reveals that sellers are having the upper hand, a trend that may likely lead to a continuation or reversal, depending on market forces as all eyes are on companies that are yet to submit 2021 audited results. The NGX index’s action broke down another support level of 46,900, trading below its 20-day moving average. As volatility persists and downtrend towards the next support level is sported around 46,800.34bps. Should the index break this point, the next visible level is 46,628.19 points.

Technically, the NGX index is making higher lows, as the session witnessed a selling sentiment that could be linked to panic trading and selling activities in some major sectors that rallied recently. The possibility of the market reversing this trend is a function of impressive payouts and improved economic condition during this last days of earnings filing, following which we advise investors to play dividend stocks to reduce investment risks around the market.

Tuesday’s trading started on the downside and oscillated on selloffs and buying interests in blue-chips that pushed the NGX’s index to an intraday low of 46,831.85 basis points from its highs of 46,905.13bps, before closing below its opening point at 46,893.86bps.

Market technicals were negative and mixed as volume traded was lower than the previous day, in the midst of breadth favoring bears on a selling sentiment as revealed by Investdata’s Sentiments Report showing 15% ‘buy’ volume and 85% ‘sell’ position. Total transaction volume index stood at 0.58 points, just as momentum behind the day’s performance remained relatively strong with Money Flow Index looked up at 55.55pts, from the previous day’s 60.21pts, indicating that funds left  the market.  

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Index and Market Caps

At the end of Tuesday trading, the key performance NGX All-Share Index shed 50.77bps to close at 46,843.09bps, after opening at 46,898.86bps, representing a 0.11% drop. Similarly, market capitalization fell by N2.6bn, closing at N25.25tr, from the previous day’s N25.27tr, which also represented a 0.11% value loss.

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The day’s downturn was driven by profit-taking and selloffs in Stanbic IBTC, Oando, International Breweries, Zenith Bank, Access Corp, Eterna, Honeywell and Fidelity Bank, among others. This impacted negatively on Year-To-Date gain, which reduced to 9.66%. Market capitalization growth stood at N2.60tr YTD, representing a 13.60% rise over the opening level for the year.

Bearish Sector Indices

Performance indexes across sectors were down, as the NGX Banking, Energy Insurance and Consumer goods closed 0.99%, 0.50%, 0.33% and 0.30% lower respectively, while NGX Industrial goods closed flat.

Market breadth was negative, as losers outnumbered gainers in the ratio of 18:16; just as transactions in volume and value terms were down, with players exchanging 214.33m shares worth N1.79bn. Volume was driven by trades in Chams, Accesscorp, Transcorp, FBNH and Etranszct.

PZ and Japaul Gold were the best-performing stocks of the session, gaining 9.80% and 9.68%, to close at N11.20 and N0.34 per share respectively on impressive Q3 earnings and market forces. On the flip side, International Breweries and Veritas Kapital Assurance lost 10% and 8.70% respectively, closing at N4.50 and N0.21 per share, on selloffs.

Market Outlook

We expect a reversal of trend on the influx of corporate actions and 2021 audited financials, as players react to the released numbers and reposition for Q1 2022 earnings expectation, as bargain hunters take advantage of the pullbacks. This is expected to support an uptrend during this earnings season, amidst the oscillating oil prices, just as the market continues to interpret economic data in relationship with 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, as 2021 Q4 GDP up at 3.98%, while the International Monetary Fund is calling for a hike in the interest rate and further devaluation of the Naira.

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CRO|Investdata Consulting Ltd





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