In the month of July which ended during the week under review, the NGX All-Share Index suffered a 2.282% decline, as equity investors lost all of N1.09tr.
The month opened with a year-to-date return on investment of 33.76%, with the All-Share Index at 100,057.49 basis points, and market capitalization at N56.6tr. By the it closed on Wednesday, the index had fallen below the 100,000bps psychological level at 97,774.22bps, while YTD returns had fallen to 30.76%, and market capitalization to N55.51tr.
The decline in July was notably driven by Dangote Cement, which recorded a significant 9.99% loss in market capitalization, being the most capitalized stock on the Nigerian Exchange, accounting for 18.2% of the total market capitalization.
The worst week of July was the week ending July 26, when 2.33% was shaved off the NGX’s capitalisation, largely due to poor performance from Dangote Cement, Eterna Oil, and Mecure. In contrast, the best week was the one that ended July 19, with positive momentum driven by United Capital Plc which gained over 42%, ahead of the 33% by sister company- Africa Prudential, and Nigerian Aviation Handling Company which chalked 9%.
Many companies reported strong Q2 results with favorable topline and bottom-line figures, which positively impacted their share prices.
During the month also, 42 stocks recorded gains while 57 other suffered setbacks, and 41 remained unchanged. Leading the gainers was Oando, which surged over 74% in just 10 trading days on the back of the news of its acquisition of the entire stake of Nigerian Agic Oil Company Limited. Oando’s share price soared from N14.25 to N25 per share. Conoil, a petroleum products marketing giant recorded a 37% growth in its share price; followed by Livestock Feeds which appreciated by 35.8%. United Capital surged by 28.5%, while Coronation Insurance saw a 26.8% rise in its share price from N0.67 to N0.85.
A recent dispute between the Dangote Group and the Federal Government regarding allegations of planned sabotage of the 650,000-barrels-per-day capacity Dangote Petroleum Refinery seems to have dampened investor confidence. 0This situation has led to a further decline in the share prices of stocks associated with Africa’s richest man. Investors are not only concerned about the strong fundamentals and technicals, but the impact of government policies that enhance investment sentiment, amid the rising inflation.
In addition, the Federal Government’s imposition of a 70% one-off windfall tax on foreign exchange gains of banks has further dampened investor confidence in the banking sector. However, recent positive comments from the chairpersons of UBA Group and FBN Holdings regarding the windfall tax on FX gains have somewhat restored investor confidence in the major banking sector. However, bank directors have countered the comments in what may be a sign that the stakeholders were not carried along.
Inflation data for June released on July 15, 2024 showed that average prices of goods and services in the period hit a 28-year high of 34.19%, marking the 19th consecutive month of sustained inflationary pressure in Africa’s most populous nation, up from 33.95% in the previous month. Imported inflation, driven by soaring food and transportation prices, generally contributed to this increase.
Also, the Monetary Policy Committee (MPC) held its 296th meeting between July 22 and 23, at which members voted to maintain a hawkish stance, raising the interest rate by 50 basis points to 26.75%, up from 26.25% two months ago. This year alone, the rate has been hiked by 650 basis points in an effort to combat inflation. Unfortunately, however, these increases have negatively impacted the stock market, which serves as a barometer for the economy. The hawkish stance has also led to higher borrowing cost for companies and, apart from reducing consumer spending.
NGXASI Monthly Chart (Opening Chart)
The true state of any market is best understood from a longer time frame. From a monthly perspective, the market is currently in the overbought region, as confirmed by the Relative Strength Index (RSI) reading of 76.02. It is generally accepted that RSI readings above 70 show an overbought condition, while below 40 suggest an oversold condition. Additionally, the Moving Average Convergence Divergence (MACD) is currently above the signal line, further confirming that the market is nearing its peak.
The market is also trading above the 20-day exponential moving average, a technical indicator commonly used to identify short-term trends within a month. This suggests that the market is in an elevated position and is likely to experience a correction. Such corrections are a natural part of market dynamics and provide opportunities for new investors to enter. During market corrections, one effective strategy is sector rotation, which by nature involves reallocating investments across various sectors of the economy to capitalize on sectors that are undervalued and potentially poised for growth. This approach helps investors make the most of market conditions by focusing on sectors that offer the best potential returns as the market adjusts and moves higher.
NGX Banking Index Monthly Chart
The Banking which was once a promising sector supporting the all-share index has lost over 23% from its all-time high. It struggled in recent times due to the new 70% one-off tax on foreign exchange gains proposed by the Federal Government. This tax has hindered banks’ recapitalization plans and diminished investor confidence, leading to significant portfolio reshuffling and sector rotation over the past two weeks. Many investors have taken profits in this sector, reallocating to other areas based on shifting sentiments. The index is approaching the oversold region with a Relative Strength Index (RSI) of 47.88 and the Moving Average Convergence Divergence (MACD) currently below the signal line, confirming the oversold condition. dditionally, the market is trading below the 20-day exponential moving average, signaling a downtrend.
On a positive note, FCMB Holdings reported strong results, causing its share price to surge. July saw limited activity in the banking sector as investors remained skeptical about the rights issues and public offerings of various banks. Already, the rights issues of some companies on the NGX are trading above their share prices and are over-priced.
NGX Oil & Gas Index Monthly Chart
The oil and gas sector was the standout performer in July, driven by impressive gains in the price of Oando, Conoil, and Eterna Oil. This sector played a key role in mitigating further declines in the composite index. Given the sector’s strong performance, it is a prime candidate for sector rotation, as highlighted in the market overview. Eterna Plc saw its share price rising from N16.00 to N19.00 during the month, marking an 18.8% increase. Year-to-date, Eterna has gained 37.2%, and while remaining below its all-time high of N30.67 reached in July 2023.
Conoil’s share price increased from N105 to N144 in July, buoyed by strong financial results for 2023, which bolstered investor confidence and reinforced the company’s growth fundamentals. Year-to-date, Conoil has surged by 71.6%, reaching its all-time high. Oando Plc also performed exceptionally well as its share price climbed from N14.35 to N25.00, a gain of 74.2%. Despite this impressive rise, it remains below its all-time peak of over N110. Investors are optimistic about future performance from companies like Japaul Gold and Seplat Energies.
Currently, the oil and gas index is in the overbought zone as confirmed by the Relative Strength Index (RSI) of 81 points. The Moving Average Convergence Divergence (MACD) is above the signal line, and the market is trading above the 20-day moving average, which stands at 1558.80 points.
NGX Insurance Index Monthly Chart
The insurance sector is currently on the brink of reaching its all-time high, demonstrating significant promise. In July 2024, insurance stocks emerged top performers, with Coronation Insurance leading the way, after its share price surged from N0.67 to N0.85 during the month, marking a remarkable 26.9% increase and a year-to-date growth of 25%. It was closely followed by Sovereign Trust Insurance rose from N0.45 to N0.55, reflecting a 22.2% gain. Year-to-date, Sovereign Trust has experienced a 31% increase, which nonetheless remains below its year-high share price of N0.72, achieved on January 16.
The sector’s strong performance is supported by a Relative Strength Index (RSI) of 68 and a Moving Average Convergence Divergence (MACD) that is currently above the signal line, indicating continued upward momentum. Given these positive indicators, the insurance sector presents an attractive opportunity for sector rotation.
