Market Update for December 11
Monday’s trading activities started positively on the Nigerian Exchange, amid increased buying sentiment across the major sectors of the market which pushed the benchmark NGX All-Share index higher on a low traded volume and positive trade metrics. This extended the recent rebound for a second consecutive session, after forming a hammer candlestick pattern on Friday’s daily chart that supported continuation of trend, as the index is heading to the strong all-time high resistance level of 71,866.37 basis points in the midst of buying interest in banking stocks. This is likely to lead to the last rally of 2023 that is underway as revealed by technical tools and indicators.
On Monday, the Central Bank of Nigeria (CBN) emphasized that the country’s banks are resilient and strong, stressing that none failed its Capital Adequacy or stress test as reported in the media. 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 devaluation especially since the beginning of this year.
The seeming rebound in banking stocks on Monday may usher in the Santa Claus rally, but we need to confirm the trend as the market opens on Tuesday, as the nation’s banks are strong enough considering their profit Q3 levels, balance sheet and other metrics which reveal they are healthy, even as there is strong earnings to support higher dividend payouts.
Also, all eyes are on the expected November consumer price index in the midst of prevailing weak economic activities and increasing macroeconomic headwinds, resulting from policy reforms and mismatch. Despite the recent upgrade of our economic outlook to positive from stable by mood’s rating agency.
Market players are expected to take advantage of any moves to create more wealth by taking the right decision at the right time. There is buying momentum in the face of index retracing up to its consolidation indicating possibility of another breakout, which is a bullish sign, after forming a bottom reversal pattern that 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.
The position taking in the midst of positive market breadth supported the market, as momentum indicators signal recovery, MACD convergent with index action indicates bull divergence on low traded volume and buying sentiment. As dividend paying period draw 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 $76.52 per barrel in the midst of OPEC output cuts confusion and Venezuela set to boost crude and gas supply. 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.
Monday’s trading opened in the upside and it was sustained throughout the session, despite oscillating on buying interest in blue chip companies and others, even as there were profit booking in some stocks. This situation pushed the Index to an intraday high of 71,685.84bps from its lows of 71,503.35bps, before closing above its opening level at 71,669.91bps.
Market technicals were positive and mixed with a lower volume traded, when compared to the previous session, in the midst of breadth that favoured the bulls on a buying sentiment as revealed by Investdata’s Sentiments Report showing 91% buy position and 9% sell volume. The total transaction volume index stood at 0.79 points, just as the impetus behind the day’s performance was strong, with Money Flow Index looking down to read 67.32pts, from the previous day’s 67.87pts, indicating that funds left the market, despite closing in the green.
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Index and Market Caps
The composite index NGXASI, at the end of Monday trading inched up by 128.17bps, closing at 71,669.91bps, from the 71,541.74bps opening level, representing a 0.18% up. Market capitalization rose by N70.14bn, closing at N39.22tr, from the previous day’s N39.15tr, which also represented a 0.18% value gain.
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The upturn was driven by buying interest in the shares of MTNN, Ecobank Transnational Index, Zenith Bank, Accesscorp, GTCO, BUA Cement, UBA, UACN, Flour Mills and Chams, among others. This impacted mildly on Year-To-Date gain, reducing to 39.84%, while Market Capitalization YTD gain stood at N11.21tr, representing a 40.56% rise above its opening level for the year.
Bullish Sector Indices
Sectoral performance indexes were mixed as the NGX Insurance closed lower by 0.21%, while the NGX Banking led the advancers after gaining 1.59%, followed by Industrial and Consumer goods with 0.21% and 0.03% respectively, As NGX Energy finished flat.
Market breadth was positive with gainers outnumbering losing in the ratio of 30:23, while transactions in volume and value terms were down, after players exchanged 375.32m shares worth N3.85bn, driven by trades in Veritas kipital, Universal Insurance, Accesscorp, Fidelity Bank and UBA.
ETI and Deapcapital were the best performing stocks, gaining 9.88% and 9.84%, closing at N22.80 per and N0.67 share respectively, on market sentiment and forces. On the flip side, RT Briscoe and NSL Tech lost 9.68% and 9.33%, closing at N0.56 and N0.68 per share, purely on the back of profit taking and selloffs.
We expect the mixed performance to continue on bargain hunting for dividend paying stocks ahead of year end 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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