Mixed Sentiment Lingers, As Investors Digest Nigeria’s GDP Data, Corporate Earnings, Ahead Of MPC Outcome

Market Update for February 22

Trading activities on the Nigerian Exchange on Thursday closed marginally lower as sell-side pressure resurfaced to short-live the previous session’s rebound on seeming improved market breadth. This was despite the persisting negative region as investors continue to digest the recent outcome of fixed income market auctions, ahead of earnings and corporate actions amidst news that the nation’s real GDP growth for Q4 2023 printed at 3.5%, up from 2.5% posted in the previous quarter. This performance was boosted by the positive outing of the oil and non-oil sectors for the period. The services sector reported strong performance, especially from the ICT, financial services and others, just as the oil sector reported its first positive reading in 16 quarters thereby supporting economic recovery.

The relative growth in the economy as revealed by the latest GDP figure, despite the rising economic headwinds has supported the hawkish disposition of the CBN to checkmate inflation by increasing MPR in the upcoming policy meeting next week.  Meanwhile, portfolio reshuffling continued in the face of higher yields outlook in the fixed income market and earnings expectation of companies with December financial year audited accounts.

The composite NGX All-Share pulled back on a low traded volume and selling sentiment as selloffs hit banking stocks and others ahead of their corporate actions any moment from next week till end of the quarter. Even as market players reacted to the seeming mismatch of policies by the fiscal and monetary authorities that is evidence in the rising macroeconomic headwinds. As end to the situation is not insight due to the triple evils of Naira devaluation, imported inflation and lingering insecurity, among others. These continue to weaken the purchasing power of Nigerians, wiping out their entire savings as sign of recession underway.

The recent change in trend and momentum still intact, as index trade below the T-Line to gather more strength and surpass the resistance level when it reverses up, already the index’s action is still within the distribution phase. The outcome of the TB primary market auction rates remain unchanged at 17%, 17.5% and 19% for 91, 182 and 364 tenors respectively, even as the offer witnessed oversubscription across all tenors.

The NGX had selling sentiment in the midst of continued sector rotation and portfolio repositioning, as recent pullbacks had creates buy opportunity for dividend investors ahead of the release of more audited accounts. Investors should watch out for the value areas of resistance and support levels, as more earnings hit the market any moment from now. The index’s action has displayed a mixed picture as market players eagerly await numbers from the companies, following the optimism fueled by the belief that the impressive performance from the financial sector among others may impact the market positively. This is despite concerns about the changing fundamentals of the economy in the face of rising macroeconomic headwinds that will support a revaluation of assets.

The equity market remains a leading indicator of the economy any time and any day, as such all eyes are still on the fiscal and monetary authorities for a clear direction of where the economy is heading, given developments in the FX market and global economy, especially the sustained geopolitical tensions in the Middle East and Eastern Europe. There is also the fear of a recession, among other issues that will continue to influence investment decisions, while driving volatility. The NGX index’s action trades below the T-line on daily basis in the midst of high volatility and mixed momentum to remain above the short- and long-term Moving Averages on the weekly and monthly time frame.

The chart pattern and candlestick formation at the end of the trading session revealed a multiple bottom reversal pattern at a strong support level that requires confirmation as trading open on Friday.  Therefore, market players should target companies with consistent track records of dividend payment, strong fundamentals and growth prospects that will support further growth in earnings which price feeds on in any market cycle. Technically, the index’s action is still at overbought state with bearish money flow divergent which a topping chart pattern that signal correction.

The momentum indicators signaled weakness in the market, as the ADX continues to look down at 56.57, while RSI and Money Flow Index were on same direction with ADX to read 59.75 and 48.41 points against the previous session 60.18 and 58.3 points respectively. This should be watch by players as they trade with caution because funds are still leaving to the market. The trading volume pattern suggests hold and watch disposition of market players, as traders reduce position in some sectors in the face of others investment windows returns remain below inflation and falling Naira.

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Oil price slide marginally on Thursday to continue its oscillation, as it trades at $83.21 per barrel in the midst of mixed macroeconomic data across the globe and weak global demand in the face of Middle East conflict even when ceasefire discussion is ongoing to pave way for peace. Coupled with the Ukraine and Russia war that had persisted in the face of inflation resurfacing again.  The rising geopolitical tension across the globe is also a major threat to many economies and the commodity market. Also, oil supply increase by OPEC and others impact oil price as it continued to oscillate. This trend may likely continue in 2024, this up and down movement of oil price also continues to drive volatility.

Thursday’s trading session opened slightly in the green and was sustained till afternoon before reversing on profit taking and selloffs in financial stocks and others. This pushed the NGX’s index to an intraday low of 101,236.46bps, from its highs of 101,465.60bps, before closing below its opening figure at 101,239.10ps.

Market technicals for the session were negative and mixed, as volume was lower 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 1% buy position and 99% sell volume. The total transaction volume index stood at 0.43 points, just as impetus behind the day’s performance was relatively weak as Money Flow Index is looking down  at 48.41pts, from the previous day’s 58.93pts, indicating that funds left the market.

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Index and Market Caps

At the end of trading, the benchmark NGXASI slipped 123.28 basis points, closing at 101,239.10bps after opening at 101,362.28bps, representing a 0.12% drop, just as market capitalization fell by N67.45bn, closing at N55.40tr from the previous day’s N55.46tr, which also represented a 0.12% value loss.

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The downturn was driven by selloffs in the shares of UACN, PZ, Stanbic IBTC, UBA, Accesscorp, Wema Bank and Cornerstone, among others, which impacted mildly on Year-To-Date gain which reduced to 35.39%. Market capitalization YTD gain stood at N13.98 trillion, representing 35.40% above its opening level for the year.


Mixed Sector Indices

The sectoral performance indexes for the session were mixed, as NGX Industrial goods closed marginally higher by 0.04%, while NGX Banking led the decliners after losing 0.22% followed by Insurance and Consumer goods with 0.22% and 0.08% respectively. Just as NGX Energy finished flat.

Market breadth was negative with losers outnumbering gains in the ratio of 28:20, while activities in volume and value were down after players exchanged 253.00m shares worth N4.94bn. Volume was driven by trades in, UBA, Accesscorp, Prestige Assurance, Zenith Bank and Transcorp.

Omatek and Sunu Assurance were the best performing stocks, gaining 10% each, closing at N0.77 and N2.09 per share respectively on market forces and sentiment. On the flip side, Daar Communication and Wema Bank lost 10% and 9.93% respectively, closing at N0.72 and N7.80 per share, purely on selloffs and profit taking.


Market Outlook

We expect mixed sentiment to continue as players digest the latest GDP data and outcomes of the recent auctions of DMO and CBN in the face of expected audited corporate earnings and ongoing portfolio rebalancing. This is amidst the volatility and upcoming policy meeting, while pullback at this point will add more strength to upside potential. As such, investors should take advantage of price correction. Also looking at the trends and events across the globe and domestically.

Ambrose Omordion

CRO|Investdata Consulting Ltd