Investors Realign Portfolios On Q3 Earnings Reports, Hope For Solutions To FX Hiccups

Market Update for the Week Ended October 27 and Outlook for October 30- Nov 3

Trading on the Nigerian Exchange last week was buoyed by renewed buying interest after sell sentiments had pulled the market down the previous week, as more impressive corporate scorecards were made available to the investing public in the face of high volatility, increasing liquidity and macroeconomic headwinds. The NGX All-Share index extended its consolidation range over the period as the earnings released so far did not reflect the gloomy state of the economy. Many companies across various sectors posted impressive numbers, while some recorded mixed performance and others were disappointing.
As the market enters the peak of the earnings season ahead of month-end and submission deadline, more numbers are likely to hit the market with surprising and disappointing results, thereby increasing the ongoing volatility, while at the same time creating buy and sell opportunities for market players, even when the monetary and fiscal authorities are struggling with policies on market interest rates, currency devaluation, tax reforms and others, while domestic insecurity and global geopolitical tension influencing risk across all the investment windows with high inflation keeping fixed income instruments in real negative returns. However, the equity market remains ahead of inflation with positive corporate earnings yields that are likely to support higher payouts and dividend yields at the end of the day, in addition to capital gains.
Corporate earnings do not move the overall market, it is the interest rates or yields, focus on the CBN and the movement of liquidity. Most people in the market are looking for earnings and conventional measures. It is liquidity that is a function of positive or negative sentiments that moves the market. So, based on this perspective, as fixed income market yields remain mixed up to this week and down next week in the face of rising inflation and Naira devaluation on a daily basis, due to persistent shortages in the foreign exchange market, coupled with policy confusion and summersaults by the Central Bank of Nigeria (CBN), especially regarding the recent lifting of the ban on 43 items. We note the moves by the government to inject between $7bn and $10bn to provide supply and settle thevbacklog of obligations to ease, which will reduce the ongoing volatility in the exchange market.
The NGX is still intact, trading above the T-line on a weekly chart to resist further decline, ahead of its critical support levels, amid buying interests in blue-chip stocks, which pushed the indicators higher in the midst of continued oscillation in transaction volume pattern. This further confirmed position taking as market players digest the earnings released so far and looking forward to more corporate earnings in the new week.
The relative low volume of transaction in the market is also an indication that smart money can mark-up the price at any time and without notice. These, notwithstanding, we urge investors to wait for confirmation of the trend, with bargain hunters already taking advantage of the ranging market to position in stocks with strong earnings capacity and bright prospects. The impressive corporate earnings from over 20 companies so far like Accesscorp, Stanbic IBTC, Julius Berger, Nascon, Japaul Gold, GTCO, Presco, MRS Oil, and Dangote Cement among others, while that of Nigerian Breweries and some others posted negative earnings for the period. There was improvement in the scorecards of manufacturing companies, although the numbers came mixed, considering where they are coming from, due to the negative impact of FX hiccups on that sector over the recent months.
Meanwhile, market volatility continues to support technical traders in the midst of prevailing buying interest and mixed sentiments, resulting from portfolio rebalancing and sector rotation in the midst of the escalating war in the Middle East, and the better than expected earnings that signals the possibility of higher payouts at year-end. This is especially true of companies whose share price had pulled back in the midst of the strong numbers posted, which reveal their undervalued state. This can be seen in the high dividend yields that point to the possibility of bargain hunters taking position to hedge against the country’s soaring inflation.
To navigate the rest of the year market volatility and its mixed outlook profitably using fundamental and technical analysis to run, join investdata live sessions at noon every trading day “and 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 market consolidation. As volume of transaction witnessed within the week remain above the average traded volume, it is time to go shopping for undervalued stocks, sectors and the next insider playing opportunity.
Oil price during the week under review oscillated to trade at $90.48 per barrel in the midst of the ongoing middle east conflict and OPEC supply cut, as fear of potential diesel outage increased, despite the seeming cooling inflation. We note also the rising geopolitical tensions across the globe and supply disruptions longer, due to the Russia-Ukraine war that has lingered for more than a year, and is indeed escalating. The up and down movement of oil prices also continues to drive volatility across different investment windows.

Movement Of NGXASI
It was a mixed performance for the week, as the benchmark NGX All-Share index closed lower in three trading sessions, and up twice, ending up in the green. The mixed sentiment reflected on the major sectors of the market as energy and banking stocks witnessed position taking in the midst of portfolio repositioning, as onvestors digested the earnings released so far.
Trading for the period opened 0.06% down, extending the previous losses, but was halted on Tuesday when the index gained 0.51% due to buying interests in financial services stocks, but pulled back at midweek and Thursday by 0.02% and 0.18% respectively on profit taking. The key performance index rebounded slightly on Friday, gaining 0.08%. These brought the week’s total gain to 0.33%, compared to the previous week’s 0.42% loss position.
In all, the composite NGXASI inched up 221.17 basis points, closing at 67,136.58bps, compared to the week’s 66,915.41bps opening level, after touching an intra-week high of 67,383.60bps and a low of 66,860.14bps. Market capitalisation also rose by N121.5bn, representing a 0.33% appreciation in value for the period.
The top advancers’ table for the week was dominated by low and medium cap stocks amid the buying interest that hit highly priced stocks Seplat and Geregu in the face of high volatility. Also notable is the fact that investors are taking advantage of the price oscillation to buy into value and high dividend yield companies.
Market breadth for the period was negative as losers outnumbered gainers in the ratio of 42:39 on bulling sentiments as revealed by investdata sentiment report showing 53% ‘buy’ volume and 47% sell position. Money Flow Index was looking down at 71.85bps from the previous week’s 74.07 points, an indication that funds left the market on a weekly time frame.

Technical View
NGX index’s action continued in its distribution phase as the market consolidated on the weekly chart with low traded volume signaling absence of institutional investors in the market now, while position trading is ongoing by investors, as the market trades above the T line on a daily and weekly time frame to sustained its uptrend in the midst of ranging market and buying momentum. We note also that the index is trading above the 50-day moving average on the weekly time frame, as the quarterly financials are set to support the market on the strength of the numbers posted so far.

Mixed Sectoral Indices
The sectorial performance indexes were mixed, as NGX Energy and Banking closed higher by 2.07% and 1.04% respectively, while the NGX Insurance led the decliners’ after losing 1.12%, followed by Industrial and Consumer goods with 0.15% and 0.04% respectively.
Activities in volume and value were mixed, as investors exchanged 1.45bn shares worth N25.42bn, compared to the previous week’s 1.50bn units valued at N24.28bn. Volume was driven by Financial Services, ICT Industry and Conglomerates. The was boosted specifically by trading in Accesscorp, Fidelity Bank, UBA, Chams and Transcorp.
Chams Holding Company and Geregu Power were the best performing stocks for the week, gaining 27.52% and 20.63% respectively, and closing at N1.90 and N380 per share on market sentiments and earnings expectations. On the flip side, VFD Group and CHI Plc lost 18.98%and 10.43% respectively, at N218.20 and N1.03 per share, purely on selloffs and profit taking.

Outlook for the week
We expect mixed sentiment and performance to continue on portfolio rebalancing and reaction to Q3 earnings reports released so far. Also, Investors and traders await the moves of the government to resolve FX shortage in the exchange market, even as all eyes are on the apex bank and Ministers to rollout a national economic agenda. However, retracement to the 65,559.46bps level and below is possible on profit taking as global and domestic events unfold.

Ambrose Omordion
CRO|Investdata Consulting Ltd
Tel: 08028164085, 08179547605