Investors Await Confirmation Of Markup Phase Return, Amid Rotation, Ahead MPC Meeting

Nigeria’s stock market rebounded on Thursday after the benchmark NGX All Share Index broke out another strong resistance level of 53,100.27 basis points on mixed sentiments and strong buying interests in the telecoms stock which lifted the market. This halted three successive sessions of bear run, even as profit-taking continued across major sectors of the market, following which trading closed significantly higher despite the negative breadth and buying sentiments on a low traded volume. The index retraced up on a northward movement, signaling a continuation of the markup phase which, however, needs confirmation at Friday’s session.  

The renewed buying interests in blue chips resulted from bargain hunters taking advantage of pullbacks to position as sector and portfolio rotation continue. This happened at a time market players are also digesting the inflation reports and earnings yields, ahead of next week’s Monetary Policy Committee meeting and other concerns related to next year’s general election activities kicked off, beginning with primaries of political parties at the end of this month.

As we have always said, profit-taking is one of the market dynamics that create opportunities for new entrants as players await pullbacks to jump into fundamentally sound stocks with positive returns above the inflation rate. Also, investors are keenly observing happenings on the nation’s economic front, and in the face of another slight decline in the Central Bank of Nigeria (CBN) Treasury Bills’ primary market auction rates, especially the long-tenor 364 days.

The April inflation rate at 16.82% in the report recently released by the NBS may likely trigger an outflow of funds from fixed income instruments into high dividend yield stocks as a hedge, at a time the real return has moved deeper into negative territories. Stakeholders are, however, anxiously awaiting plans by the CBN to intervene in the petrol and gas products sector, which as announced was targeted at making premium motor spirit and diesel available, thereby easing the pain of manufacturers, SMEs, and households across the country, in the face of the epileptic power supply. We note also and await the implementation of the directive by the National Assembly that the Nigerian National Petroleum Company provides aviation fuel for local airline operators, while another MPC meeting is around the corner, but nothing has happened to the CBN plans.

The resurfacing bulls halted three straight days of profit-taking, just as position-taking was witnessed in some banking, healthcare, industrial, and others that recorded gains in the face of low volume patterns and earnings power. Tentatively, the continued mixed direction of the fixed income market yields and TB rates may hurt the profit booking in the stock market, amidst the ongoing war in Ukraine that has influenced the global markets in recent times.

Oil price oscillation continues in the international market, trading at $111.30 per barrel, on the news that Shanghai has signaled an end to the lockdown imposed due to the impact of the ravaging Coronavirus pandemic. This has been made worse by the EU embargo on the importation of Russian oil and a slight increase in production output by OPEC. The high prices of crude oil and diesel are pushing production and living costs up, heightening inflationary pressures across the globe on a weak economic outlook, thereby influencing monetary policies of central banks as they move to checkmate the impacts of the Russia-Ukraine conflict on the global economy to avoid a global recession. The nation’s soaring inflation is a potent threat to the fixed income market and investment yields, which should be an indication that more funds may likely flow into the equity space as institutional investors balance their portfolios.

However, despite the rebound of the market. This is the time to rely on your stop-loss and other trade tools effectively at this point of the new trend that extended the markup phase, especially when high cap stocks that control 70% of market capitalisation move up ahead of reactions to their earnings and expected dividend payments in May and June 2022.

The NGX index’s action broke out a strong resistance level to start a new uptrend on a low volume, as it trades above the ‘T-Line’ and 20-day moving average. The market is strong as it moves above 2007 highs with a new strong and resistance level is 54,034.19bps region, while volatility persists and uptrends towards the next breakout sported around 53,417.76bps. Should the index break this point, the next visible resistance is 53,656.72bps.

Technically, the NGX index is on a new uptrend due to position-taking in the midst of impressive earnings releases and sector rotation. The possibility of the market sustaining this trend is high as a function of market forces and improved economic conditions during this quarter, following which we advise investors to play defensive stocks and reduce investment risks around the market.

Meanwhile, Thursday’s trading opened on the upside and was sustained for the rest of the session, on buying interest in blue chips, a situation that pushed the NGX’s index to an intraday high of 53,281.31bps from its lows of 52,717.88 points before closing above its opening figure at 53,275.49ps.  

Market technicals were weak and mixed, even as volume traded was lower than the previous day in the midst of negative breadth and buying sentiment as revealed by Investdata’s Sentiments Report showing a 99% ‘buy’ volume and 1% sell position. The total transaction volume index stood at 0.75 points, just as momentum behind the day’s performance was strong with Money Flow Index looking up at 74.94pts, from the previous day’s 71.02pts, indicating that funds entered the market.

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Index and Market Caps

The benchmark NGXASI, at the end of the day’s trading, gained 554.15bps, closing at 53,275.49bps, after opening at 52,721.34bps, representing a 1.05% growth. Similarly, market capitalization rose by N298.75bn, closing at N28.72tr, from the previous day’s N28.42tr, which also represented a 1.05% appreciation in value.

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The upturn was driven by accumulation in the shares of MTNN, Lafarge, Stanbic IBTC, GSK, Accesscorp, UBA, FBNH, NEM, and Transcorp, among others. This impacted mildly on Year-To-Date gain, reduced to 24.72%. Market capitalization growth stood at N6.83tr YTD, representing a 28.08% rise over the opening level for the year.

Bearish Sector Indices

Performance indexes across sectors closed lower, except for the NGX Industrial goods that gained 0.14%, while the NGX Insurance led the decliners with a 1.33% loss, followed by Energy, Banking, and Consumer goods with 0.79%, 0.76%, and 0.23% respectively.

Market breadth remained negative, as losers outnumbered gainers in the ratio of 29:20; just as activities in volume and value terms drop, as players exchanged 274.56m shares worth N8.45bn. Volume was driven by trades in Transcorp, MTNN, Conoil, GTCO, and FBNH.  

Transcorp Hotel and Beta Glass were the best-performing stocks of the session, gaining 9.89% and 9.74%, closing at N5.89 and N62.55per share respectively on market forces and sentiments respectively. On the flip side, Conoil and Eterna lost 10.00% and 9.59% respectively, closing at N28.35 and N6.60 per share, on profit-taking.

Market Outlook

We expect a mixed trend on increased positioning as the market reacts to impressive earnings of Presco and its corporate action, just as portfolio rotations while market players digest the macro-economic data and Q1 corporate earnings release, ahead of March year-end 2022 audited financials with dividend announcements to support uptrend in the new month amid the rebound in oil prices. Also, the market continues to interpret the rising inflation in relation to the 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.

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Ambrose Omordion

CRO|Investdata Consulting Ltd

Tel: 08028164085, 08179547605