Indecision, Mixed Trend Ahead, As Investors Align Portfolios To Q3 Earnings

Market Update for November 1

The nation’s equity market started the month of November on a negative note, as profit-taking hit the Nigerian Exchange (NGX) after four consecutive months of bullish transition. Trade metrics revealed a low traded volume and negative market breadth as the composite index closed lower. Historically, Investdata research shows that the first trading session in the month of November has always been mixed, closing down five times, according to an analysis of 11-year data.

Its also quite interesting to note that putting together all the six months of the year, the best six months’ window of the year on the nation’s stock market performance is between November and April as revealed by data.

The stock market, being a leading economic indicator, is already pointing to where the economy is heading, considering the robust corporate earnings of listed companies representing different sectors of the economy that were just made available to the exchange to guide investment decisions and investment plans.

The October Purchasing Managers’ Index showed a sharp expansion, amidst other positive economic data that continue to confirm the ongoing recovery whether weak or slow, according to a report by Stanbic IBTC research that shows manufacturing activities rose to 54.1 points from 52.3 points in September, reflecting the sixteenth consecutive month of expansion.  On the strength of this consistent recovery, the World Bank and International Monetary Fund had revised Nigeria’s GDP growth projection from 1.8% and 2.5% to 2.4% and 2.6% respectively. This was on the strength of a positive outlook on oil prices and its environment, just as improved in production output and rising crude oil prices will help the CBN intervention in the foreign exchange market crisis as the nation’s external reserve continue to look up for now.

Technically, there was a pause in the NGX index’s action, revealing the presence of profit-takers, even as the strength behind the uptrend remains intact with ADX reading 52.83, and the money flow index, 72.70 points on a daily chart. The possibility of a rebound is high after institutional investors and other market players finish digesting the recent earnings released to the market. We note that the numbers came largely better than expected.

However, these strong earnings, interim corporate actions, and level of liquidity in the equity space will determine the extent of this market rally when it rebounds from this pullback, with all eyes on oil prices at the international markets, currently trading above $84 per barrel. There is also the impact of the seeming oscillation at the international market, as the direction of yields in the fixed income market remains unclear.

Meanwhile, Monday’s trading opened slightly on the upside, amid the slowdown as the market oscillated on profit booking and position taking, a situation that pushed the NGX index to an intraday low of 41,976.79 basis points, from its highs of 42,047.50bps, before closing below its opening level at 41,976.79bps.

Market technicals were mixed as the volume traded was higher than the previous day in the midst of breadth favouring the bears on a selling sentiment as revealed by Investdata’s Sentiment Report showing 100% sell volume. The total transaction volume index stood at 0.98 points, just as the energy behind the day’s performance was strong, with Money Flow Index dropping to 72.70 points, from Friday’s 74.874 points, indicating that funds left the market.

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Index and Market Capitalisation Movement

At the end of Monday trading session, the key performance index shed 61.81 basis points and closed at 41,976.79bps after opening at 42,036.17bps, representing a 0.15% drop, just as market capitalization shed N32.268bn, closing at N21.91tr, from the opening value of N21.92tr, also representing 0.15% value loss.

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The session’s downturn was driven by selloffs and profit-taking in GTCO, NB, FBNH, Zenith Bank, ETI, Access Bank, PZ, UBA and Dangote Sugar, among others. This impacted mildly on Year-To-Date gain, which reduced to 4.26%. Market capitalization stood at N761.67bn YTD, representing a 4.01% growth from the year’s opening value.

Mixed Sector Indices

Performance indexes across sectors were mixed, as the NGX Insurance and Industrial Goods index closed 1.93% and 0.11% higher respectively, while the NGX Oil/Gas led the decliners after losing 1.82%, followed by Banking and Consumer Goods with 0.43% and 0.30% respectively.

Market breadth turned negative, as losers outnumbered gainers in the ratio of 31:20, while activities in volume and value terms were up, as stockbrokers traded 378.15m shares worth N3.24bn, compared to the previous day’s 334,74m units valued at N3.20bn. Volume was boosted by trades in  Mutual Benefits Assurance, UBA, FBNH, AIICO, and Transcorp.

Fidson Healthcare and Guinness Nigeria were the best-performing stocks after gaining 9.92% each to close at N6.76 and N39.30per share respectively on the impressive earnings performance and market forces. On the flip side, Eterna and UPDC lost 9.94% and 9.44% respectively, closing at N7.79 and N1.63 per share purely on the weak Q3 earnings performance.

Market Outlook

We expect a mixed trend as players adjust their portfolios while reacting to positive numbers, just as candlestick formation and volume traded at the end of day trading revealed indecision as institutional players are not selling yet. It is equally noteworthy that this 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.

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