Investors Bet On Defensive, Div Stocks, MPC Outcome, As Naira’s Free Fall Makes Nigerian Stocks Cheaper

Market Update for the Week Ended February 16 and Outlook for Feb 19-23

Last week on the Nigerian Exchange was a bullish but mixed, following the few highly priced stocks that made new 52-weeks high in a divergence market with money flow index and others looking down for the period to reverse the previous negative outing on a low traded volume. Recall that most stocks stopped rising three weeks ago, and now the high beta names can’t keep up with the low volatility stocks. Nigerian Breweries kicked off the audited earnings reporting season with negative numbers, the highlight of which was the sluggish growth in turnover and a loss after tax owing to the huge foreign exchange loss, following which the board is unable to recommend a dividend. This is why investors should trade with caution and target companies with positive earnings reports, as profit taking and pullbacks makes dividend paying stocks attractive at this time.

The NGX, no doubt, is making new all-time highs and shaking some market players around with the week’s Consumer Price Index report, as available facts suggest a market that is still disconnected from the realities. Already, Nigeria’s macroeconomic indices continue to deteriorate in the midst of the unclear direction of government policies. According to the latest data from Nigeria’s National Bureau of Statistics (NBS), inflation soared to 29.9% in the first month of the year, the highest since 1999 when Nigeria returned to democracy. Fixed income market yields are likewise on the run as the Central Bank of Nigeria (CBN) seeks to attract foreign investors and the much needed US Dollars, amid the lingering FX market challenges that continues to drive inflation as the Naira’s value depreciates on a daily basis. The situation is made worse by the rising insecurity that has driven farmers away from their farmlands.  This trend is likely to continue as we look forward to the February CPI due to volatility in the FX market and imported inflation, with the fire brigade approach of the apex bank seemingly sends negative signals that are already impacting confidence and sentiment in the market and economy at large.

As the earnings reporting season enters its peak, expect sector rotation and portfolio rebalancing in the face of bargain hunting ahead of primary auctions in the fixed income market ahead of the CBN’s policy meeting.

Technically, Nigeria’s equity market remains at its overbought state that still calls for caution, even as sentiment reports for the period reveals buying pressure  of 100%, while MFI reads 92.51 points on the weekly time frame trading above the T-line on a strong momentum. Despite the seeming market rebound, the advancers and decliners line were negative for the week, even with bargain hunters trying to take advantage of the pullbacks. Government’s ongoing reforms are yet to put the economy on the path of recovery, or progress due to a mismatch of policies, and even somersault altogether.

The  monetary authority at this point needs more consultations and slow down of this fire brigade approach that seems to have worsened the state of Naira, while reviewing its policies and implementation ahead of the first MPC meeting, amid the hawkish signals from the CBN aimed at attracting foreign investors and checkmating inflation. This will further slowdown the economy as foreign exchange challenges linger in the midst of uncoordinated policies now piling more pressure on the runaway nflationary environment, which remains a threat to real returns on fixed income instruments that have remained negative.

Global stock markets sustained a bullish sentiment even when profit taking hits heavy tech companies in the midst of hot inflation data in US and gradual sliding  of UK and Japan’s economy into recession. As MSCI index  gained 0.3% for the period under review to remain strong.  This trend is expected to continue in the new week as more corporate earnings hits the market and other factors to shape the global markets.

Buying interests in BUA Foods, Airtel Africa, Geregu Power and Seplat pushed the  composite NGX All-Share index to breakout its strong resistance of 105,005.82 basis points hitting a new all-time high of 105,722.80bps, after touching 105,740.39bps.  Market players should, therefore, wake up and trade intelligently and smart to avoid being trapped in any position. While this is no joke, it is exciting and scary time on the Exchange at the moment. Now is the time for action, if you must protect your investment, or capital by taking profit and targeting defensive stocks that are stable and established with strong/compact shareholding structures, relatively small outstanding shares, consistent in dividend payment and leaders in their sector or industry.

To navigate the rest of Q1 market volatility and its mixed outlook profitably using fundamental and technical analyses to run, join Investdata’s Live Sessions at noon every Mondays, Wednesdays and Fridays, also get investdata Technical Toolbox to play the current state of the market do suggest that discerning investors are gradually becoming greedy, while others are fearful, as seen in the recent breakout of bullish channel to continue the markup phase. As volume of transaction witnessed within the week remain low traded volume, it is time to go shopping for undervalued stocks, sectors and the next insider dealing opportunity.

Oil price sustain its weekly gain as it trade at $83.47 per barrel following the weak US retail sales reports that weaken the dollar in the face of speculation over potential Fed rate cuts and OPEC’s continued commitment to production cut. As major central banks of the world continued to watch the mixed macroeconomic data emanating from different domain amidst the lingering tensions in the Middle East and disruption in oil output and demand outlook. Just as Russia-Ukraine war has lingered over two year now, and is indeed escalating. The up and down movement of oil prices also continues to drive volatility across different investment windows.

Movement Of NGXASI

The NGX had a positive outing for the week on price appreciation by highly priced stocks in the midst of profit taking hitting the banking stocks as  portfolio repositioning continue ahead of dividend season and primary market auction of FGN Savings bond/TB this week. This will lead to repricing of assets, as the yields environment in the fixed income market continues changing.

The index recorded four trading sessions of up markets, and one day of down market, closing higher on a low traded volume in the face of buying sentiments and volatility, as bargain hunters took advantage of pullbacks in other stocks. Also, the share price of Vitafoam was adjusted during the week for a dividend of N1.56 per share, making it the first markdown for the year.

Trading for the week started  on a positive note, extending the previous gain after inching 0.19% on Monday. This trend was short-lived on Tuesday when the index lost 0.33%, but rebounded powerfully at midweek, chalking 1.76% on continued buying interest in large cap companies. This uptrend was sustained on Thursday and Friday when the composite index rose by 0.58% and 1.56% respectively. This brought  the week’s  total gain  to 3.79%, compared to the previous week’s 2.45% loss position.

Consequently, the NGX All Share Index  gained  3,864.41bps closing at 105,722.78bps, compared to the week’s 101,858.37bps opening level, to touch intra-week  high of 105,740.37bps  from lows  of  101,585.68bps. Market capitalisation also rose  by N2.1tr to N57.76tr representing a 3.79% value gain.

The top gainers’ chart was dominated  by  highly priced stocks  and low cap companies in the midst of buying sentiment and position taking  in dividend paying stocks. Also notable was the fact that traders  and  investors are still reducing  their position in some sectors and stocks  ahead of their earnings reports and unfolding events in the monetary and fiscal arena.

Trade metrices  for the period were mixed and weak as losers outnumbered gainers in the ratio of 51:35 on a buying pressure as revealed by investdata sentiment report showing  100% ‘buy’ volume and 0% sell position. Money Flow Index was looking  down at 92.51 points  from the previous week’s 92.55 points, an indication that funds left  the market on a weekly time frame, despite closing higher.

Technical View

The NGX index’s action broke out the strong resistance level of 105,005.80points  to test the 105,740.38bps level that ushered in a markup phase which needs confirmation in the new week. Also, we note that investors are taking long-term positions in the face of pullbacks and volatility.  Amid position taking by dividend investors now increasing their holdings, even as the market continues to trade above the T-line on a  weekly and monthly time frame. In the process the NGXASI sustained its uptrend in the midst of a bearish divergence between money flow and index’s action at the overbought state of the NGX.

We note also that buyers are in control, notwithstanding the fact that the market closed on a negative breadth, even as the index is trading above the 200-Day Moving Average on the weekly time frame.

Mixed Sectoral Indices

The sectoral indexes for the week closed mixed with the NGX Industrial Goods and Banking closed 1.83% and 1.34% lower respectively, while the NGX Consumer Goods led the advancers after gaining  10.96%  followed by Energy  and Insurance  with 5.25% and 2.66% respectively.

Transactions in volume and value fell as players exchanged 1.56bn shares worth N36.50bn, compared to previous week’s 2.48bn units valued at N47.86bn. Volume was driven by Financial Services, Conglomerates  and Consumer goods. This was boosted specifically by trading in  UBA, FBN Holdings, GTCO, VeritasKapital and Transcorp.

Juli Pharmcy  Plc and Geregu Power  were the  best performing stocks for the week, after gaining  45.54% and  33.30% respectively, and closing at N1.47 and N901.00per share on market sentiments and forces. On the flip side,  Meyer and Morison Industries lost 18.96%and 18.69% respectively, at N5.60 and N2.48 per share, purely on selloffs and profit taking.

Outlook for the week

We expect mixed sentiment to continue as investors bet on corporate actions, amid profit taking, as  dividend players target fundamentally sound stocks ahead of  much awaited Monetary Policy Committee meeting holding later this month after six months of postponement. Investors are watching with rapt attention as the free fall in the value of the Naira has made Nigerian stocks cheaper amidst the rising inflation. Also, the market awaits the steps government would take to resolve the country’s lingering FX challenges.

However, retracement to the 100,559.46bps level and below is possible on profit taking as global and domestic events unfold.

Ambrose Omordion

CRO|Investdata Consulting Ltd

Tel: 08028164085, 08179547605