Investors Position On NGX Ahead Of Dividends, Inflation Data, Policy Directions

Market Update for December   13

Trading activities on the Nigerian Exchange remained bullish at the midweek on increased buying interest in banking stocks and blue chip companies as portfolio rebalancing and sector rotation entered a high gear ahead of year end and dividend season. Yield outlook for fixed market remains mixed in the face of rising inflation and depreciation of naira.  The outcome of midweek TB primary market auction revealed a decline in rates across all tenors to 6.25%, 11% and 13.5% respectively for the 91, 182 and 364-day instruments, from the previous 9%, 13% and 15.75% respectively, reflecting an oversubscription, which also suggest the high liquidity in the financial market.

This should be a plus for the equity market which had returned over 41% year-to-date, hitting another new historic high while crossing the 72,000 psychological line on buying sentiment in banking stocks and large cap companies on the strength of their impressive Q3 earnings performance. These are likely to support higher payout, even as their prices are hitting new 52-week highs, and despite the anticipated banking sector recapitalization expected to further enhance their competitiveness and ability to support economic growth, given that the sector is engine room of any economic development.

The benchmark NGX All-Share index closed higher, extending the bull transition for the fourth consecutive session on a low traded volume and positive market breadth, in the face of buying sentiment and positive momentum to break out the 72,000 mark that support the ongoing rally which may be the last for 2023 as ushered in by the banking stocks. Don’t be carried away by up market but trade your plan and know to when to take profit and cut loss. Let your technical analysis guide you at all time.

The renewed interests in the market and banking stocks may be link to the recent upgrade of the nation economic outlook to positive from stable by Moody’s, and the assurance by the Central Bank of Nigeria (CBN) that the country’s banks are resilient and strong, stressing that none failed its Capital Adequacy Ratio or stress test contrary to media reports. We note the ongoing year-end seasonality and portfolio rebalancing ahead of the earnings reporting and dividend season in Q1 2024, when many companies with December year-end will submit their unaudited and audited financials for 2023.

Meanwhile, investors are on the lookout for the banking sector recapitalization guidelines from the apex bank in the new year.  Recall that the proposed banking sector recapitalization is aimed at boosting their capital base to enable them effectively drive the expected $1tr economy envisaged by government, following the Naira deprecation especially since the beginning of this year.

As rates in TB auction declines and bond market remain bearish, as fixed income market real returns remains negative, just as all eyes are on the expected November inflation reports in the midst of prevailing weak economic activities and increasing macroeconomic headwinds, resulting from policy reforms and mismatch. Traders and investors are expected to take advantage of any moves in the market to create more wealth by taking the right decision at the right time. There is buying momentum in the face of index breaking out its consolidation range to confirm an uptrend that signaled the beginning of a markup phase and a bull rally which support continuation of trend. This is amidst the continued disconnection of the stock market from economic reality of the country with headwinds that remain a major source of concern for investors, because the longer this disconnection danger for the stock market.

Also, the policy tightening disposition of the CBN at this time could result in an unintended economic contraction in an environment where growth is already weak and fragile, with high cost of funds further pushing cost of production and services higher, driving prices northward. This is made worse by imported inflation due to the lingering foreign exchange challenges, among others. The two consecutive quarters of rate hikes, as well as the proposed fresh round of bank recapitalization are expected to drive the much desired economic development in the face of a significant devaluation of the Naira, just as the surging inflation is bound to drive mixed outlook in the market and economy in the first half of 2024.

Position taking in the midst of positive market breadth supported the market as momentum indicators signal recovery, just as MACD convergent with index action indicates bull divergence on low traded volume and buying sentiment. Meanwhile the dividend paying period in the market draws even closer. A glimpse into what we should expect at year-end has been provided by the unaudited Q3 corporate earnings reports released by listed companies.

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Oil price oscillation continued, as it rebounded to trade at $74.47 per barrel in the midst of speculations by traders and last meeting of Fed for the year. Even as middle east conflict is taking another dimension.  As rate hike pause by some of the central banks due to cooling inflation continue ahead of 2024.  The influence of demand and supply oil are worsened by the geopolitical tensions rising across the globe at a time the Russia-Ukraine war gradually approaches its third year. The war remains a major cause for concern with much more at stake than previously thought. The supply tightening due to the Russia-Ukraine war will propel the up and down movement in oil price, which also drive market volatility across the globe.

Midweek, trading opened in the green and was sustained throughout the session, on demand for banking stocks and buying interest in blue chip companies. This situation pushed the Index to an intraday high of 72,300.61ps before it closed above its opening level from its lows of 72,299.79bps.

Market technicals were positive and strong with a higher volume traded, when compared to the previous session, in the midst of breadth that favoured the bulls on a buying pressure as revealed by Investdata’s Sentiments Report showing 100% buy position and 0% sell volume. The total transaction volume index stood at 0.93 points, just as the energy behind the day’s performance was strong, with Money Flow Index looking flat to read 72.58pts, from the previous day’s 73.08pts, indicating that funds are still the market.

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 Index and Market Caps

The composite NGXASI gained 392.53bps, to close at 72,299.79 from the opening of 71,907.26 which represented a growth of 0.55%. Market capitalization rose by N214.81bn, closing at N39.56tr, from the previous day’s N39.35tr, which also represented a 0.55% value gain.

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The upturn was driven by buying interest in the shares of FBNH, Oando, Accesscorp, GTCO, Zenith Bank, UBA, Wapco and Infinity Trust Mortgage Bank, among others. This impacted mildly on Year-To-Date gain, reducing to 41.07%, while Market Capitalization YTD gain stood at N11.76tr, representing a 41.64% rise above its opening level for the year.

Mixed Sector Indices

Sectoral performance indexes were mixed as the NGX Banking and Industrial goods closed 3.42% and 0.01% higher respectively, while the NGX Insurance led the decliners after losing 0.88%, followed by Energy and Consumer goods with 0.20% and 0.18% respectively.

Market breadth was positive with gainers outnumbering losers in the ratio of 34:16, while activities in volume and value terms were up, after investors exchanged 433.18m shares worth N8.08bn, driven by trades in Accesscorp, GTCO, Zenith Bank, Sterling NG and UBA.

SCOA and Infinity Trust Mortgage Bank were the best performing stocks, gaining 9.88% and 9.86%, closing at N1.78 per and N2.34 share respectively, on market sentiment and forces. On the flip side, University Press and Sunu Assurance   lost 9.82% and 9.38%, closing at N2.48 and N1.16 per share, purely on the back of profit taking and selloffs.

Market Outlook

We expect positive sentiments and profit taking to continue on bargain hunting for dividend paying stocks ahead of CPI reports in the midst of sector rotation and portfolio rebalancing on the strength of the better-than-expected corporate numbers released and high yields. However, we note that 2024 is beginning dividend season ahead.

Meanwhile, all eyes are on the fiscal and monetary authorities to give direction of the government reforms and policies so far.

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