Mixed Performance May Linger As Investors Digest July Inflation Data, Impact Of Fiscal Devts

Market Update for August 16

The bearish sentiment on the Nigerian Exchange continued at the midweek, with selloffs and profit booking hitting highly priced stocks and blue chip companies, pushing the benchmark NGX All-Share index lower still on a less than average traded volume and negative market breadth. Also, market players continued to digest the July consumer price index at 24.08% and impact of rising inflationary pressures on financial market instruments as more companies release their half-year corporate earnings with mixed performance and rising economic concerns due to the ongoing reforms in the system.
The high inflation rate is already heating the fixed income market instruments, even as August savings bonds were undersubscribed, with yield rate of 9.6% and 10.2% for the two and three-year tenors respectively. The recent inflation data has revealed the worsening negative returns in the fixed income space. These situations are to further guide the ongoing portfolio rebalancing ahead of first-tier banks’ half-year earnings reports which we expect would be net beneficiaries from foreign exchange revaluation gains and corporate actions of PZ, Flour Mills and Honeywell Flour for their financial year ended May and March 2023 respectively.
The current market position and the state of the economy call for cautious trading, while discerning investors are taking advantage of the market consolidation and pullbacks, after forming a descending triangle and flag that supports continuation of trend or reversal. It is the time to buy into value stocks with strong fundamentals, as the market looks forward to favourable and positive news that will trigger yet another round of buying interest. Also noteworthy is the rates mixed outlook in the fixed income market, amidst portfolio repositioning and sector rotation on the strength of company earnings’ power.
The ongoing volatility is due to the changing economic fundamentals, and government reforms that are driving the reset in financial market and trading environment. It should be taken against the backdrop of August being a very dicey month when eyes should be kept on the chart, trend, sentiment and volume at all times, using multiple time frame analyses to catch short, medium and long term buying breakouts or sell breakdowns. All these are already impacting prices of equities in the face of the recent rate hike that made fixed income instruments attractive for risk averse investors, just as institutional investors continue digesting these numbers in the midst of rising inflation and opportunities within the equity space to hedge against its surging pressure.
Also, the Price/Earnings ratios of the NGX and most individual companies reveal their relatively undervalued state and higher upside potentials to attract liquidity and positive sentiment. The economic managers are expected to give clear directions of government policies and their implementation. This is why there is need for investors to navigate the market now that many equity prices look relatively cheap on the strength of some impressive earnings. The market cycle of top and bottom in the face of technical pattern of over bought and sold market or individual stocks signal that a reversal is underway, as bargain hunters take advantage of the pullbacks to reposition their portfolios.
The NGX index’s action still trades below the 65,000 basis points and ‘T line’ but above the 50-day moving average, attracting bargain hunters to position in fundamentally sound medium and low cap stocks amidst digesting of scorecards of many companies, assigning of portfolios to the cabinet ministers. This is besides the $3bn loan to support FX float in the exchange market. It is therefore time to use technical tools, if you have been ignoring charts and fighting the trends, it is your chance to step up your game. It is pertinent to stress the fact that profit taking is part of market dynamics, which can occur at any time. As we look forward to a mixed outing and intermittent profit taking, since policy factors that pushed the market up are shaking, as market wait for favorable news and statements from the minsters.
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Oil price oscillation continued, as it pulled back to trade at $83.85 per barrel in the midst of crude draw down, inflation reduction Act and gloomy economic condition in China. The Russia-Ukraine war remains a major concern, the prevailing high interest rate regime and slowing inflation. Also, supply tightened due to the Russia-Ukraine conflict that entered the second year. This up and down movement in oil price, has continued to drive volatility across markets.
Meanwhile, midweek’s trading opened on the upside and oscillated for the rest of the session to pullback profit taking and selloff in some stocks. This situation pushed the Index to an intraday low of 64,548.58 basis points from its highs of 65,128.21bps, before closing below the opening points at 64,625.28bps.
Market technicals were negative and mixed with a higher volume traded when compared to the previous session in the midst of breadth favoring the bears on a selling sentiment as revealed by Investdata’s Sentiments Report showing 13% buy position and 87% sell volume. The total transaction volume index stood at 0.36 points, just as the energy behind the day’s performance was relatively weak, with Money Flow Index reading 41.42pts, from the previous day’s 39.83pts, indicating that funds entered the market, despite closing lower.
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Index and Market Caps
At the end of the midweek trading, the composite NGXASI shed 303.70 basis points, closing at 64,625.28bps, from its 64,928.98bps opening level, representing a 0.47% decline. Whereas Market capitalization was up by N35.37tr, from the previous day’s N35.36tr, which also represented a 0.04% value gain, as a result of MTNN listing of its bonus shares for shareholders that converted their 2022 cash dividend.
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The session downturn was driven by selloffs in the shares of Airtel, GTCO, FBNH, Accesscorp and Fidelity Bank, among others. This impacted negaively on Year-To-Date growth, which reduced to 26.10%, while Market Capitalization YTD gain went up to N6.03tr, representing a 26.85% rise above its opening level for the year.

Mixed Sector Indices
Sectoral performance indexes were mixed, as NGX Consumer Goods and Energy closed 2.42% and 0.36% higher respectively, while the NGX Insurance led the decliners after losing 2.83%, followed by Banking with 0.44%. Just as NGX industrial goods was flat
Market breadth was negative as losers outpaced gainers in the ratio of 22:16, while activities in volume and value were up after investors exchanged 291.71m shares worth N7.43bn, driven by trades in GTCO, Universal Insurance, UBA, SterlingNG, and Transcorp.
Eterna and ICWG were the best performing stocks, gaining 10% and 8.61% respectively, closing at N17.60 and N3.28per share each, on market forces. On the flip side, NEM Insurance and Sunu Assurance lost 10% and 8.51%, closing at N5.40 and N0.86per share, purely on the back of profit taking.

Market Outlook
We expect mixed performance to continue as market players digest the latest CPI data, assigning of portfolios to the minsters and the $3bn cash loan to help intervention in Nigeria’s FX market in the midst of expected first tier banks earnings reports and bargain hunting, while portfolio realignment and sector rotation persists.
However, pullbacks are creating buying opportunities amidst economic reforms of the government, just as more policy pronouncements and economic managers hit the ground running, a situation expected to offer investment direction eventually.
We note that discerning investors have continued to target fundamentally sound companies and defensive stocks to protect their portfolios. Any pullback at this point may add more strength to upside potentials. As such, investors should take advantage of price rally to take profit, while also looking at the trends and events across the globe and domestically.

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