Mixed Sentiment May Linger On Portfolio Rebalancing, As Investors Bet On NTB Auction Rates
Market Update for January 24
Tuesday’s was a mixed session on the Nigerian Exchange as the benchmark NGX All-Share index closed slightly lower to continue its sideways movement on a mixed sentiments and positive market breadth in the midst of the aggressive hike of the MPR by 100 basis points to 17.5% from 16.5% at the end of first Monetary Policy Committee meeting of the Central Bank of Nigeria (CBN).
The rate hike despite a marginal 13 points slowdown in inflation rate which the apex bank wants to checkmate after almost a year of monetary policy tightening at the expense of declining economy activities and high cost of living. So far, the latest hike brings to a total of 600 basis points rise in interest rate in 10 months from 11.5%.
This is just as all eyes are on Wednesday’s NTB primary market auction to see the convergence or divergence between the rate and the new MPR, after TBs had suffered decline in the last four auction offers. This is likely to trigger portfolio rebalancing into fixed income instrument in the short run but sectors and companies with high dividend, strong earnings prospects will not suffer much slide in price due to the earnings season and corporate actions that are around the corner.
The ranging market in the face of relatively low transaction volume also indicates the possibility of markup by smart money after removing the supply or pullback as CBN has further hike rate that might cause fund to flow out stocks into fixed income market.
The mixed sentiment across some major sectors of the market despite the seemingly ranging position of the index action may continue to support the rally as revealed in the short and medium-term trends which remain intact, but Wednesday and Thursday’s trading will give a clear direction.
This, therefore, signals the continuation of this recovery in the month of January due to the earnings reporting season that would support price, notwithstanding uncertainties associated with the coming 2023 general elections, and possible post-election rally, all things being equal.
Technically, the NGX index action still in a distribution phase in the face of a topping chart and bullish V-shape pattern that supports reversal or continuation of trend on a daily and weekly time frame, as the divergence between the index action and MACD at the end of Monday trading on a dally chart supports reversal of trend, due profit taking in blue chip stocks. Let us keep our gaze on market forces and money flow.
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Oil price oscillation continued, as it pulls back to trade at $86.40 per barrel on rising crude production and recovery of China economy in the midst of increasing recession fear. Just as the geopolitical tension, high interest rate and inflation across the globe continue to threaten the world. Also, supply tightened due to the Russia-Ukraine war that has lingered so far. The up and down movement of oil price also continues to drive volatility across markets.
Tuesday’s trading opened slightly in the downside and oscillated throughout the session on profit taking in some blue-chip stocks and others, a situation that pushed the NGX’s index to an intraday low of 52,533.14 basis points from its high of 52,691.04bps, before closing slightly below its opening figure at 52,612.55bps.
Market technicals were positive and mixed, with higher volume of trade, compared to the previous session in the midst of breadth favoring the bulls on a mixed sentiment as revealed by Investdata’s Sentiments Report showing 50% buy position and 50% sell volume. The total transaction volume index stood at 0.78 points, just as momentum behind the day’s performance was strong as Money Flow Index looked down at 55.05pts, from the previous day’s 61.77pts, indicating that funds left the market.
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Index and Market Caps
The NGX All Share Index at the end of day trading slide by 45.14 basis points, closing at 52,612.55bps, after opening at 52,657.69bps, representing a 0.09% drop, just as market capitalization fell by N24.59bn closing at N28.67tr from the previous day’s N28.68tr, which also represented a 0.09% value loss.
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Meanwhile, the session downturn was driven by profit taking in the shares of Geregu Power, NB, Champion, Aiico, May/Baker and NGX Group, among others, which impacted mildly on Year-To-Date gain to 2.66%. Market capitalization YTD gain stood at N798/89bn, representing 2.66% above its opening level for the year.
Mixed Sector Indices
Sectorial performance indexes for the session were mixed, as NGX Consumer goods and Insurance closed lower by 1.31% and 0.22% respectively, while NGX Industrial goods e led the advancers after gaining 0.36%, followed by Banking with 0.32%. Just Energy closed flat.
Market breadth turned positive as gainers outnumbered losers in the ratio of 19:14. whereas activities in volume and value were up, after investors exchanged 182.40m shares worth N4.82bn. Volume was driven by trades in Geregu, Accesscorp, Transcorp, Chams and UBA.
Mutual Benefits Assurance and Unilever were the best performing stocks, after gaining 10% and 9.91% respectively, closing at N0.33 and N12.20per share respectively on market forces and impressive Q4 numbers. On the flip side, Nigerian Breweries and Caverton lost 9.90% and 9.52% respectively, closing at N41.95 and N0.95per share, purely on profit taking.
We expect mixed sentiment and profit taking on portfolio rebalancing, as all eyes are on NTB primary market auction rates in the face of Q4 earnings expectations and election uncertainty, as pullback at this point 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.
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