Investors Look To H1 Earnings Season For Direction On NGX Exchange, Ahead MPC Meeting

Market Update for the Week Ended July 8 and Outlook for Jul 13-15

Nigeria’s stock market witnessed mixed sentiments in the past week on bargain hunting activities in blue-chips and low-cap companies that impacted the benchmark NGX All-Share Index which closed lower. The index thereby halted the previous week’s positive outing on a very low traded volume amidst a positive market breadth and expectation of corporate numbers.

The week recorded selling momentum and profit-taking, just as the share price of MRS Oil and Smart Product Nigeria were adjusted for a bonus share and cash dividends of 1-for-8 ordinary shares and N0.10 dividends respectively recommended by their directors. Also, selling pressure continued across the major sectors, despite the continued flow of funds into the equity space and a fixed income market that now appeals to some investors, especially the risk-averse, and ahead of June inflation data and impressive half-year earnings released by Infinity Trust Mortgage Bank and Living Trust Mortgage Bank during the period under review.

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Oil prices oscillated during the week to breakdown the $100 per barrel price on increasing fear of global recession before rebounding in the international market to trade at $107bp, after the labour report in US beat economist forecast to reduce fear of recession.  Also noteworthy is the fact that the West continued to increase sanctions on Russia and its oil, even as these chronic high energy prices are killing the global economy, heightening inflationary pressures across the world on a weak economic outlook, thereby influencing the monetary policy options of central banks as they move to checkmate the impacts of the Russia-Ukraine conflict on the global economy to avoid economic recession. The nation’s soaring inflation is a potent threat to the fixed income market and investment yields, which should be an indication that there will be a reversal, with funds flowing back to equity space in no distant time, as institutional investors balance their portfolios.

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Movement Of NGXASI

It was a bear market last week, as the benchmark NGXASI recorded four sessions of down markets and one with marginal gain, as bargain hunters took profit from the recent retracement as they repositioned their portfolios with sectorial leaders that pulled back ahead of the half-year earnings season.

The NGX Index’s action opened the week negative, halting the previous day’s gain, sliding by 0.01% on Monday, a situation that extended to Tuesday as some market players increased the selling pressure in banking stocks, among others pulling down the index by 0.41%, even as the June Purchasing Manger index fell to 50.9 points from 53.9 points in May, according to stanbic IBTC report. But by the midweek, the selloffs slowed down as the benchmark index fell 0.07% on profit-taking, which was short-lived on Thursday with the market gaining 0.06%, but reversed on Friday when it lost 0.02%. This brought the week’s cumulative lost to 0.53%, compared to the previous week’s 0.24% gain.

In all, the NGXASI shed 272.26 basis points during the week, closing at 51,557.41bps, after touching an intra-week low of 51.530.40bps, from its highs of 51,829.67bps, which was the opening level for the week. Market capitalisation also fell during the period by N139bn, closing at N27.80tr, from the previous week’s N27.94tr, which also represented a 0.50% depreciation in value, just as additional 145,074,002 ordinary shares of NB Plc were listed on Thursday, July 7, 2022, on the Daily Official List of the Nigerian Exchange Limited (NGX), as part of the company’s Scrip Dividend election scheme, as well as the FGN bonds boosted the market cap.

The week’s top advancers’ table was dominated by low and medium cap companies that attracted buying sentiments as portfolio reshuffling continued in the midst of markdown for 2021 dividends and reaction to March year-end accounts payout, ahead of the economic data and half year earnings season. Also noteworthy is the fact that investors are taking advantage of the pullbacks and expected earnings reports to accumulate positions.

Market breadth for the week was positive, as gainers outnumbered losers in the ratio of 31:26 on buying interest and selloffs, as revealed by the investor sentiment report showing 91% ‘sell’ volume and 9% buy position. Money Flow Index was looking up at 65.30bps from the previous week’s 64.21 points, an indication that funds entered the market on a weekly chart to confirm the inflow of funds into some stocks despite the high yield in fixed income instrument and others, while on a daily time frame money flow index was up, revealing that funds entered the market on Friday despite the market closing down marginally.

The NGX index’s action on a weekly and daily time frame ranges to form a sideways movement, as the market remains strong in the face of increased volatility, profit-taking and price adjustment. We note also that the index is trading flat on ‘T’ line to signal the likelihood of reversal to up or down depend on the state of the expected financials.  The major strong support level of 51,567.41 points on a low high traded volume to remain above the 20- and 50-day moving average to reveal strength. The candlestick formation, at the end of the week, showed indecision among players ahead of macrocosmic data, and other factors to reposition their portfolios for Q2 earnings seasons. The candlestick pattern indicates price correction or retracement of the trend, depending on market forces in the new week after the long holiday.

Bearish Sectoral Indices

Sectorial performance indexes for the week were down, as NGX Insurance led the decliners, after losing 2.53%, followed by Consumer Goods, Energy, Banking, and Industrial Goods with 1.42%, 0.41%, 0.31% and 0.15% respectively.

Activities in volume and value terms were down as market players traded 822.40m shares worth N10.37bn, compared to the previous week’s 1.35bn units valued at N24.49bn, with volume driven by Financial Services, Conglomerates, and Consumer Goods sectors. Specifically, was driven by trades in GTCO, UBA, Transcorp, Accesscorp and Zenith Bank.

Academy Press and UPDC were the best-performing stocks in the week, gaining 48.82% and 20.39% respectively, closing at N1.89 and N1.24 per share on bonus of declaration and market forces respectively. On the flip side, RT Briscoe and International Breweries lost 22.73% and 14.29% respectively, at N0.34 and N5.40 per share, purely on selloffs and profit taking.

Outlook for the week

We expect a mixed trend amidst bargain hunting and expectation of consumer price index for June and Q2 corporate earnings ahead of MPC meeting after mortgages banks listed on the exchange had kicked off the earnings season with impressive numbers from Infinity and Living Trust Mortgage Banks. Also, investors are repositioning for the half-year earnings reports, as market players continue to digest the PMI.  Also, investors and traders continue reacting to the earnings power, as the revaluation of quoted companies on their earnings performance and growth prospects continue. We note that income investors have sustained buying into interim dividend-paying stocks.

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Ambrose Omordion

CRO|Investdata Consulting Ltd

Tel: 08028164085, 08179547605