Improved Sentiments Still On Bargain Hunting, Pullback Ahead Of MPC Meeting

Market Update for March 16

Volatility continued on the Nigerian Exchange at midweek, as the composite NGX All-Share index closed marginally higher in the midst of low traded volume and positive market breadth, despite it was slightly ahead of ongoing earnings reporting season. The rekindled buying interests in consumer goods, and insurance, among others halted the previous sessions profit-taking and selloffs, just as market players continue to digest the recently released inflation data for February 2022. As noted previously, consumer price index expectedly increasing by 10bps to 15.7%, besides a 14bps jump in core inflation to 14.0% (the paciest climb since April 2017). The core inflationary pressures mirrored the recent surge in the cost of energy-related products across the country as oil prices continue on the northward spike in the aftermath of the unrest in Eastern Europe, fueling global inflation. Specifically, energy inflation touched a 56-month high of 13.1%, driven by a prolonged period of fuel scarcity and higher AGO and aviation fuel prices. Elsewhere, food inflation was relatively stable at 17.1% in the absence of any food-related shock

The positive sentiment in the midst of low traded volume that revealed indecisions and the wait-and-see attitude of investors, given the uptick inflation and evidence of inflationary pressure around as a result of high cost of energy and fuel, coupled with the global crisis that threatens the fixed market real returns which are already in negative territory, due to the high inflation. This situation creates buy opportunities. However, we warn that market correction is not over yet, the oscillating trend signals that a major uptrend is underway, especially when it gets to the level where it is good enough for fixed income market players as February inflation looks up, among others to jump into equity positions.  

Also, the ongoing peace talks between Russia and Ukraine  has supported stock prices in matured markets despite rates hike in US, while commodities prices have slowdown, especially crude oil price that had pulled back for three days now, amid the rising cost of production that is fueling inflation. This is capable of slowing down the global economic recovery and growth in 2022 and beyond and the negative impact of the Russia-Ukraine war on the global economy, as most of the developing countries depend on wheat imported from both countries now at war. The combination of this and the soaring price of diesel and premium motor spirit, is forcing prices of bread skyward with most bakeries threatened with a definite shutdown.    

Midweek’s candlestick formation revealed that there is a likely continuation of trends, or reversal, depending on market forces as trading opens on Thursday. The NGX index’s action retraced up, but is still in the distribution phase and trading above the seven-day moving average. The benchmark index remains strong above the 47,000 basis points region which is the support level, as volatility persists and downtrend towards the next breakdown, sported around 47,287.09bps. Should the index break this point, the next visible support is 47,154.35 points.

Technically, the ongoing volatility is best described as up and down movement, even as the session’s position taking could be linked to demand for telecoms and financial sector stocks, and others that pulled back recently, ahead of more 2021 full-year earnings season and Q1 numbers, coupled with expected economic data. The possibility of the market sustaining this trend is a function of impressive numbers and payout during this earnings season, following which we advise investors to play dividend stocks to reduce investment risks around the market.

Meanwhile, Wednesday’s trading opened slightly on the downside and oscillated to rebound on improved buying interests in low, medium and high cap stocks, a situation that pushed the NGX’s index to an intraday high of 47,373.96 basis points from its highs of 47,338.48bps, before closing slightly above its opening point at 47,364.46bps.

Market technicals were positive and mixed, with volume traded lower than the previous days in the midst of breadth favoring the bulls on buying sentiment as revealed by Investdata’s Sentiments Report showing 73% ‘buy’ volume and 27% ‘sell’ position. Total transaction volume index stood at 0.40 points, just as the momentum behind the day’s performance remained strong with Money Flow Index looking down at 70.44pts, from the previous day’s 73.70pts, indicating that some funds left the market.

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Index and Market Caps

The NGX All-Share-Index, at the close of the day’s trading inched up by 23.60bps to close at 47,364.46bps, after opening at 47,349.86bps, representing a 0.05% up. Similarly, market capitalization rose by N5.12bn, closing at N25.53tr, from the previous day’s N25.51tr, which also represented 0.05% value gain.

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Wednesday’s upturn was driven by accumulation in shares of MTNN, Okomu Oil. NGX Croup, UACN, Stabic IBTC, UBA, Flour Mills, Unilever, Ecobank Transnational Incorporated, Honeywell, PZ Cussons and NPF Microfinance, among others. This impacted mildly on Year-To-Date gain, inched to 10.88%. Market capitalization growth stood at N2.86tr YTD, representing a 14.86% rise over the opening level for the year.

Mixed Sector Indices

Performance indexes across sectors were mixed, as the NGX Insurance, and Consumer Goods closed 1.24%, and 0.19% higher respectively, while the NGX Banking was down by 0.59%, while Industrial goods and Energy closed flat.  

Market breadth turned marginally positive, as gainers outnumbered losers in the ratio of 18:17; just as activities in volume and value terms were mixed, as investors exchanged 145.83m shares worth N2.54bn. Volume was driven by trades in UBA, Access Bank, Zenith Bank, GTCO and ETI,

The best-performing stocks for the session were NPF Microfinance and PZ, after gaining 10% and 9.79%, closing at N2.31 and N7.85 per share respectively on dividend expectation and market forces. On the flip side, Royal Exchange Assurance and Livestock Feeds lost 9.93% and 9.01% respectively, closing at N1.02 and N1.59 per share, on selloffs.

Market Outlook

We expect improved sentiment to continue as bargain hunters take advantage of the pullback to position as investors digest the inflation data released on Tuesday, ahead of the inflow of more economic data and more release of 2021 audited financials with dividend announcements to support uptrend during this earnings season and oscillating oil prices. Investors are also looking forward to next week’s meeting of the Central Bank of Nigeria (CBN) Monetary Policy Committee, while 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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