Improved Sentiments May Linger Amid Bargain Hunting, Portfolio Realignment On Fiscal Reforms

Market Update for July 17

The bull resurfaced on the Nigerian Exchange on Monday, opening the week higher, slowing down the profit taking, thereby wiping out Friday’s loss position on improved buying interests, in the midst of expectation of more Q2 corporate earnings that kicked off last week. There were also the submission of impressive Q2 numbers by Infinity Trust Mortgage Bank, and mixed performance from Geregu Power. There was also the June inflation figure of 22.79%, which came better-than-expected when compared to the 30% forecast by economist/analysts, compared to the 22.41% recorded in May. The inflation rate was a reflection of the broad food and core inflation pressure of 25.3% and 22.3% year-on-year respectively. Month-on-month, food inflation rose to 2.4% from 2.2% in the previous month of May, while the core prices grew less sharply as anticipated by 1.7% against 1.8% posted in May. In a normal condition or environment, members of the Central Bank of Nigeria’s Monetary Policy Committee should hike rates at their forthcoming meeting this month, but that may not be the case here, because the ongoing economic reforms are putting more inflationary pressure on the system. As such, it is expected that the MPC meeting next week should review the impact of the various government policies announced since May 29, and the likely impact in the next two months. Consequently, we see a pause rate adjustment by the MPC members at the coming meeting.
These factors should give the nation’s financial market and economy direction with the possibility of continued rates hike, or a pause, we note that monetary policy reform and financial sector reset are ongoing to drive the target 6% GDP growth target of the government and attract investment from domestic and foreign investors. We note also that the CBN, last week, reviewed the Cash Reserve Ratio for Merchant Banks to 10%, from 32.5% so as to boost long-term financing in the system, a move that looks good. However, a continuation of policy mismatch may not help at this current situation, as there should be rebalancing to drive the economy and come out of this stage for a clear direction.
The increasing inflow of fund into the equity space and NGX rebounding are signals that the bulls are underway, but we need to confirm this when the market opens today, as the benchmark index’s action tested 63,272.79 basis points mark, heading to breakout the 63,000 mark again on a different buying pattern. That is expected to support the markup phase, while the chart pattern supports a continuation of trend, or correction.
Sector rotation and portfolio reshuffling continued as all eyes are on half-year earnings reporting season and new week MPC meeting, all of which are happening against the backdrop of an environment where reform policies are driving hyperinflationary pressure in the face of an already heated economy and headwinds ranging from rising inflation, high interest rate regime and insecurity, among others.
NGX rebounded on a positive sentiment and buying interest, in the midst of profit taking. Investors should know that profit taking is part of market dynamics. This is why despite the changing market structure as a result of gradual return of foreign portfolio investors and trading environment, we look forward to a mixed outing and intermittent profit taking, since factors that pushed the market to this level remain unchanged so far. We also note that the earnings reporting season will reveal the state of corporate earnings and others, which would expectedly be the game changer as we go into the quarter. Already, all eyes are on the expected appointment of economic managers and minsters by this new government, a situation that will determine their rating of the new administration.
Major sectors of the market witnessed a mix performance as the bull resurfaced again on renewed buying interests among low, medium and high cap stocks, especially banking, insurance and telecomm that pushed the index up. This was as more quoted companies notified the exchange and investors of insider dealings, their closed periods and board meeting dates to approve the half-year financials.
The NGX index’s action is set to breakout the T-line, as it trades above 50-Day Simple Moving Average and 100DMA on the daily and weekly chart in the midst of government economic and financial market reforms. This calls for a change in trading strategies and caution, amid the possibility of profit taking and correction any time. As such, technical traders and discerning investors must be guided, because higher prices will lead to lower dividend yields, even when market Price to Earnings Ratio is relatively low. It however provides better opportunities for investors to hedge against inflation even when fixed income market yields look attractive and remain mixed in the face of high inflation.
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Oil price oscillation continued as it trades at $78.56 per barrel in the midst of disappointing China Q2 GDP and unclear rate direction of fed, as inflation rate gradually slowdown across many economies. Even as the Russia-Ukraine war remain a concern, the prevailing high interest rate regime and slowing inflation. Also, supply tightened due to the Russia-Ukraine conflict that entered the second year. This up and down movement in oil price, has continued to drive volatility across markets.
Meanwhile, Monday’s trading started on the upside and was sustained for the rest of the session, despite oscillating on profit-taking and buying interest financial services providers stocks and others that pushed the Index to an intraday high of 63,272.79bps, from its lows of 62,439.221ps, before closing above it opening points at 62,943.35point.
Market technicals were positive and strong with a higher volume traded when compared to the previous session’s in the midst of breadth favoring the bulls on a mixed sentiment as revealed by Investdata’s Sentiments Report showing 60% buy position and 40% sell volume. The total transaction volume index stood at 0.74 points, just as energy behind the day’s performance was strong, with Money Flow Index reads 79.53pts, from the previous day’s 76.07pts, indicating that funds entered the market.
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Index and Market Caps
At the end Monday’s trading, the benchmark NGXASI gained 373.62bps closing at 62,943.35bps, from its 62,569.73bps opening level, representing a 0.60% growth. Market capitalization also rose by N203.44bn to N34.27tr, from the previous day’s N34.07tr, which also represented a 0.60% appreciation in value.
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Monday’s upturn was driven by positioning in shares of Geregu, FBNH, Accesscorp, MTNN and Cornerstone Insurance among others. This impacted positively on Year-To-Date growth, increased it to 22.8%, while Market Capitalization YTD gain increased to N6.17tr, representing 22.5% above its opening level for the year.

Mixed Sector Indices
Sectoral performance indexes were mixed, as NGX Banking and Insurance closed higher by 7.6% and 0.4% respectively, while NGX Consumer goods led the decliners after losing 0.7%, followed by Industrial goods and Energy with 0.7% and 0.6% respectively.
Market breadth turned positive as gainers outnumbered losers in the ratio of 42:28, while activities in volume and value were up after investors exchanged 710m shares worth N13.8bn, driven by trades in SterlingNG, Transcorp, Unity Bank, Accesscorp and Universal Insurance.
Unilever and Fidelity Bank were the best performing stocks, gaining 10% each, closing at N15.95 and N7.37 per share respectively, on positive market forces and sentiment. On the flip side, Veritaskap and UBN lost 10% each, closing at N0.27 and N6.30per share, purely on selloffs and profit taking.

Market Outlook
We expect improved sentiments to continue on bargain hunting in the midst of profit taking, portfolio repositioning amidst supportive reforms of the government, just as more policy pronouncements and appointments would offer investment direction. Also, as more Q2 earnings reports are expected to confirm the real state of the company performance and attract liquidity in the midst of markdown dates and the release of remaining audited accounts.
We note that discerning investors have continued to target fundamentally sound companies and defensive stocks to protect their portfolios. Any pullback at this point may add more strength to upside potentials. As such, investors should take advantage of price rally to take profit. Also looking at the trends and events across the globe and domestically.

Ambrose Omordion
CRO|Investdata Consulting Ltd
Tel: 08028164085, 08179547605