Expect Uptrend As Fixed Income Investors Reposition On Q3 Earnings Season, Dividends

Market Update for October 25

Equity prices continued to move higher on the Nigerian Exchange on Monday, despite the mixed and volatile session witnessed during trading session, just as the benchmark index closed on a positive note in the midst of positive breadth and high traded volume. 

The bull-run and positive momentum persisted on the strength of Q3 earnings reports and expectation that more numbers will hit the market as we come closer still to the earnings season, with few corporate earnings flowing in from the consumer goods, financial services, healthcare, real estate and others have given insights into what the market should expect, even as market continues reacting to these numbers. The increasing bullish nature of the market across the low, medium and high cap stocks indicates that buyers are in control, despite the seeming profit-taking as reflected in the mixed sectorial performance indexes.

Technically, the strength behind the NGX index’s action rally is becoming stronger as revealed by the ADX reading 45.55 which is above 20 points and money flow index at 84.37 points on a daily chart, just as the composite NGX All-Share index broke out the minor and major resistance levels of 41,744.32 basis points and 41,844.16bps to test 41,868.43bps on a very high traded volume and the bullish signals by the indicators. The possibility of correction after or during this peak of earnings season is high, with the expectation of more quarterly earnings hitting the market.

However, the state of these expected numbers and level of liquidity in the equity space will determine how far this uptrend will go, with all eyes on oil prices, currently trading above $85 per barrel, despite the seeming oscillation at the international market, as yields direction in the fixed income market remains unclear.

Monday’s trading started on the downside but rebounded in the midmorning to midday, which was sustained throughout the session, despite the profit taking and positioning in different class of stocks. This pushed the index to an intraday high of 41,868.43 basis points, from its lows of 41,738.33bps, after which it closed slightly above the opening points at 41,814.74bps.

Market technicals were positive and strong with higher volume traded than the previous day’s in the midst of breadth that favoured the bulls, amidst the mixed sentiment as revealed by Investdata’s Sentiment Report showing 59% ‘buy’ position and 41% sell volume. The total transaction volume index stood at 1.93 points, just as momentum behind the day’s performance was strong, as Money Flow Index looked up to 84.37 points, from the previous day’s 83.11 points, indicating that funds entered.

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At the end of Monday’s trading, the key performance index NGXASI gained 51.48 basis points and closed at 41,814.74bps after opening at 41,763.26bps, representing a 0.12%up, just as market capitalization rose by N26.87bn, closing at N21.82tr, from the opening value of N21.85tr, also representing 0.12% value gain.

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The session upturn was as a result of buying interests in stocks in like, Airtel Africa. FBNH, Unilever, Total, Guinness, PZ, ETI, Mansard, and NPF Microfinance, among others, which impacted mildly on Year-To-Date gain that increased to 3.83%. Market capitalization stood at N764.55bn YTD, representing a 3.63% growth from the year’s opening value.

Mixed Sector Indices

Performance indexes across sectors were mixed, as NGX Banking and Industrial Goods indexes closed lower by 0.19% and 0.06% respectively, while the NGX Insurance led the advancers after gaining 1.88%, followed by Consumer Goods and Oil/Gas with 0.43%, and 0.40% respectively.

Market breadth was positive, as gainers outnumbered losers in the ratio of 28:20, while activities in volume and value terms were up, as investors exchanged 674.50m shares worth N7.59bn, compared to the previous day’s 510.18m units valued at N7.12bn. Volume was driven by further heavy trades in FBNH, ETI, Universal Insurance, Transcorp and GTCO. Specifically, 350,541,622 shares of FBN Holdings valued at N4.345bn were traded during the session in what may be existing major shareholders consolidating their stakes in the ongoing fight for the soul of the premier Nigerian banking group.

PZ and Mutual Benefits Assurance were the best-performing stocks after gaining 9.52% and 7.14% to close at N6.45 and N0.30per share respectively on positive numbers/ 25kobo dividend and market forces. On the flip side, Abbey Building and Prestige Assurance lost 9.46% and 8.51% respectively, closing at N0.86 and N0.43per share purely on selloffs.

Market Outlook

We expect an uptrend as fixed income players reposition on Q3 earnings season for year-end dividend possibility, just as reactions to these positive numbers persist in expectation of more quarterly corporate earnings to hit the market. Also candlestick formation and volume traded at the end of Monday trading revealed that trend was intact as institutional players are not selling yet. It is equally noteworthy that any pullback at this level is for the accumulation of more positions ahead of year-end seasonality. Also, many stocks are trading within their buy ranges, a situation expected to attract more funds into the equity space, given the Dividend Yield capable of serving as a hedge against inflation.

Also, institutional investors and others continue to digest recently release economic data, the outcome of the Treasury bill auction was 91 and 182 days tenor rate remained unchanged and 364 days slightly down by 25 points to 7.25% for a whole one year ahead of earnings season portfolios repositioning. Also, investors are still observing the interplay of forces in the FX market as the CBN’s new digital currency platform. The day’s low volume suggests that institutional investors are not making a sell move yet in the market, as they look at the economic data and policy direction of the economic managers. It is noteworthy that oil price rebounded in the international market; corporate actions, as well as the interim dividend possibilities, are around the corner for companies like Total, Seplat, Okomu Oil, Presco, Lafarge Africa, and others.

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Ambrose Omordion

CRO|Investdata Consulting Ltd




Tel: 08028164085, 08179547605