Market Update for December   12

The bullish sentiments and positive momentum on the Nigerian Exchange continued on Tuesday with the composite NGX All-Share index closing higher on a low traded volume and positive market breadth, extending the positive outing for the third successive session. The index broke out the 71,866.37 basis points resistance level to a new all-time high of 71,907.26bps in the midst of buying interests in banking stocks, joining its counterpart across the globe that made new 2023 highs on positive inflation report in US. This is likely to lead to the last rally of 2023 that is underway as revealed by technical tools and indicators.

The renewed interests in banking stocks may not be unrelated to the recent 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 devaluation especially since the beginning of this year.

The banking stocks and other blue chip companies may usher in the Santa Claus rally, as revealed by the session trading pattern but we need to confirm sustain  trend as the market opens  this morning, 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. This is also  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, 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 pulled back to trade at $72.65 per barrel in the midst of expected EIA report and Fed meeting. 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.

Meanwhile, Tuesday’s trading started in the upside and was sustained for the rest of the session, despite oscillating on buying interest in blue chip companies and other stocks. This situation pushed the Index to an intraday high of 71,907.26ps where it closed above its opening level from its lows of 71,651.05bps.

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 pressure as revealed by Investdata’s Sentiments Report showing 100% buy position and 0% sell volume. The total transaction volume index stood at 0.68 points, just as the impetus behind the day’s performance was strong, with Money Flow Index looking down to read 73.08pts, from the previous day’s 67.32pts, indicating that funds entered the market.

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 Index and Market Caps

At the end of Tuesday trading, the composite NGXASI inched up by 237.37bps, representing a 0.33% growth. Market capitalization rose by N129.87bn, closing at N39.35tr, from the previous day’s N39.22tr, which also represented a 0.33% appreciation in  value.

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The upturn was driven by buying interest in the shares of MTNN, Oando,  Accesscorp, GTCO, Transcorp, UBA and  Infinity Trust Mortgage , among others. This impacted mildly on Year-To-Date gain, reducing to 40.30%, while Market Bank Capitalization YTD gain stood at N11.21tr, representing a 40.96% rise above its opening level for the year.

Mixed Sector Indices

Sectoral performance indexes were mixed as the NGX Energy and Insurance closed 1.03% and 0.49% lower respectively, while the NGX Banking was in green after gaining 0.679%. As NGX Industrial and Consumer goods finished flat.

Market breadth was positive with gainers outnumbering losing in the ratio of 24:23, while transactions in volume and value terms were mixed, after players exchanged 319.56m shares worth N5.88bn, driven by trades in Julius Berger, Zenith Bank, FCMB, GTCO and  Accesscorp.

Infinity Trust Mortgage Bank  and SCOA were the best performing stocks, gaining 9.79% and 9.46%, closing at N2.13 per and N1.62 share respectively, on market sentiment and forces. On the flip side, Guinea Insurance and Conoil  lost 10% and 9.83%, closing at N0.27 and N78.00 per share, purely on the back of profit taking and selloffs.

Market Outlook

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.

Ambrose Omordion

CRO|Investdata Consulting Ltd

info@investdataonline.com

info@investdata.com.ng

ambrose.o@investdataonline.com

ambroseconsultants@yahoo.com

Tel: 08028164085, 08179547605