Mixed Sentiment On NGX, As Inflation Hits 28-Year High In Nigeria, Amid Higher Yields Outlook

Market Update for the Week Ended March 15 and Outlook for March 18-22


The positive momentum on the Nigerian Exchange continued so far in the peak month of earnings reporting season, amid buying interest by investors and traders in blue-chips and highly priced stocks. This, expectedly, pushed the composite NGX All-Share index higher even amid a low traded volume, market breadth remained positive, despite the higher than expected consumer price index showing that inflation in the month of February soared to 31.7% from 29.9% in January.

The surging inflation has further plunged the real rate of returns in the fixed income market into negative position, not minding whether it is seemingly a safe heaven. Recall that there was a heightened flow of funds into this space as a result of hike in Monetary Policy Rate  to attract foreign investment and encourage savings. The runaway inflation has, however, wipe away the savings among Nigerians due to the high cost of living.

The inflationary pressure in the nation’s economy today, is a reflection of government policies and lack of coordination between the fiscal and monetary. The February inflation figure of 31.7% is the highest level in the history of fourth republic and since April 1996. It is an indication of the skyrocketing prices of goods and services, especially food items in the market, not minding the harvest and non harvest  season. Food inflation hit 37.9% due to high cost of production due to the increased energy cost, transportation and security challenges that had kept farmers away from their farm lands across the country. There is also the impact of imported inflation due to foreign exchange challenges that led to continue depreciation of the Naira. With inflation crossing the 31% threshold, all eyes are on members of the Central Bank of Nigeria Monetary Policy Committee as they begin another policy meeting between March 25 and 26, 2024. Recall that at its inaugural meeting last month, the committee raised the benchmark MPR by 400 basis points.

Traders and investors look to more inflow of earnings next week, especially from the banking sector, no minding also that the CBN has  reiterated its directive that Nigerian banks will not pay dividend or run their operation with the FX gain recorded in 2023. The banks, the CBN directed should use the FX gains to enhance their buffer. Outside of the FX gain, the earnings power of banks are strong enough to help them offer reasonable payouts that will then support their share prices in the face of the expected recapitalization any moment from now. This sector remains the engine room of the nation’s economic growth and development and has been the most consistent in dividend payments. The numbers from  first-tier banks, especially, are expected to support the buying sentiment in the market, as the share prices of banks recently rebounded, thereby becoming attractive for dividend players ahead of their audited 2023 full year results.

Meanwhile, players are digesting the recent outcome of midweek’s TB auction and the February inflation data ahead of more corporate earnings and the next MPC meeting. The index’s action sustained an uptrend, breaking out the various psychological lines of 102,000, 103,000, 104,000 and  105,000bps mark, and even touching 105,085 on the daily  and weekly charts. It is trading above the T-line on a low traded volume in the face of the market  extending  its markup phase on multiple time frame. Just as the ongoing portfolio rebalancing  continued in the midst of alternative investment windows and rising  inflation among other economic headwinds which has been a concern for the investing public and businesses.

Technically, the nation’s equity market remains at its overbought zone on a weekly chart, amid calls for cautious trading even as sentiment reports for the period reveals buying sentiment of 100%, while MFI and RSI reads 83.08 and 78.56 points respectively looking up, as index action trades above the T-line on a increasing  momentum. The continuation of trend  and the positive breadth for the period were in the midst of buying pressure as dividend income investors  and bargain hunters  took advantage of the breakouts to position in dividend paying companies with high payout, growing earnings power,  low valuation and strong fundamental.  As the ongoing government reforms are yet to put the economy on the path of recovery, or progress due to a mismatch of policies, and even somersault altogether.

The bearish sentiment across major stock markets of the world, was as a result of mixed macroeconmic data and hotter than expected CPI in US and that of UK better than expected GDP, that weighed on the MSCI World index to close lower for the week with 0.6%. As major central banks policy meeting comes up next week. Even, as more consumer price index reports are expected to hit the market in the coming days. These expected macroeconomic data and outcome of MPC meeting will give direction in the new week.

With fundamentals changing, including trend and patterns, market players should wake up and trade intelligently and smart to avoid being trapped in any position, by combining fundamental, technical, sentiment and commonsense analyses. This is no joke, it is exciting and scary time on the Exchange at the moment. Now is the time for action, if you must protect your investment, or capital by taking profit and targeting defensive stocks that are stable and established with strong/compact shareholding structures, relatively small outstanding shares, consistent in dividend payment and leaders in their sector or industry.

To navigate the rest of Q1 market volatility and its mixed outlook profitably using fundamental and technical analyses to run, join Investdata’s Live Sessions at noon every Mondays, Wednesdays and Fridays, also get investdata Technical Toolbox to play the current state of the market do suggest that discerning investors are gradually becoming greedy, while others are fearful, as seen in the recent breakout of bullish channel to continue the markup phase. As volume of transaction witnessed within the week remain low traded volume, it is time to go shopping for undervalued stocks, sectors and the next insider dealing opportunity.

Oil price rebounded in the week under review, as it trade at $85.34per barrel following  shortfall in US inventories and attack on the Red sea, even as the many countries are calling for ceasefire in Middle East conflict. As hotter than expected CPI in US and mixed macroeconomic data emanating from different domain amid the lingering tensions in East Europe and disruption in oil output and demand outlook. Just as Russia-Ukraine war has lingered over two year now, and is indeed escalating. The up and down movement of oil prices also continues to drive volatility across different investment windows.

Movement Of NGXASI

It was another bullish week  on the  NGX, as the benchmark NGX All-Share index extended its positive outing for the second successive week to record five sessions of back to back gains in the absent of corporate earnings hitting the market  within the period. During the week, there was slight moderation in TB auction rates, as hotter than expected February inflation data hits its highest since April 1996 at 31.7%. Also, many companies notified the exchange of board meetings to approve their 2023 audited accounts, others released their Q2 earnings forecasts, while some informed the market of their delay in filing their scorecards.

Trading for the week started on positive note, extending previous gains with the index chalking 0.70% on Monday, a trend that was sustained throughout the week rising 1.45%, 0.47%, 0.05% and 0.99% respectively for Tuesday, Wednesday, Thursday and Friday respectively. This followed the buying interest in banking counters and other stocks on the exchange. This brought the week’s total gain to 3.71%, against the previous week’s 2.61% positive position.

In all these, the benchmark NGX All Share index  gained  3,754.40bps, closing at 105,085.25bps, from previous week’s 101,330.85bps closing level, after  touching  an intraweek high of 105,085.25bps and a low of 101,295bps. Market capitalisation also rose by a significant N2.0tr to N59.37tr, representing a 3.71% value gain.

The week’s top  advancers’ table was dominated  by  blue chip companies, medium  and low cap stocks in the midst of buying sentiment and position taking in stocks that had pulled back in recent time. Also notable was the fact that market players are still trading with caution, even when taking position and carrying out sector rotation  ahead of more earnings reports and unfolding events in the monetary and fiscal space.

Trade metrics  for the period were positive and strong as gainers outnumbered losers  in the ratio of 55:24 on a buying pressure as revealed by investdata sentiment report showing  100% ‘buy’ volume and 0% sell position. Money Flow Index was flat at 83.08 points  from the previous week’s 83.03points, an indication that funds entered the market  slightly on a weekly time frame.

Technical View

The NGX index’s action witnessed its rally  to continue the uptrend and positive outing, breaking out the strong resistance levels and  psychological lines while testing 105,085 that extended the markup phase and  recovery move on the weekly chart. We noted that the 106,000 mark as a strong resistance level on the daily and weekly time frame. The market is at critical zone as all eyes are on the banks  financials to support market fundamentals and attract inflow again. Also, we note that investors are taking long-term positions in the face of dividend expectation and volatility.  Amid position taking by dividend investors now increasing their holdings  in the midst of uptrend.

We note also that buyers are in control, as revealed by the buying sentiment and positive market breadth, as the index is trading above the T line and 50-Day Moving Average on the weekly time frame.

Bullish Sectoral Indices

The sectoral indexes for the week were up, save for  NGX Oil/Gas that closed lower by 0.11%, while NGX Banking index  led the advancers  after gaining  12.84%, followed by Insurance, Consumer  and Industrial Goods with 2.52%, 1.41% and 0.20% respectively.

Transactions in volume and value were down as players exchanged 1.77bn shares worth N52.87bn, compared to previous week’s 2.16bn units valued at N108.82bn. Volume was driven by Financial Services, Conglomerates  and Consumer goods industry,  boosted specifically by Transcorp, GTCO, Accesscorp, UBA and Nascon.

Julius Berger and Omatek were the best performing stocks for the week, after gaining 30.58% and  23.08% respectively, closing at N72.60 and N0.80 per share on earnings expectation and market forces. On the flip side, IEI  and Sunu Assurance  lost 27.38% and 19.11% respectively, at N1.22 and N1.27per share, on profit taking and selloff.

Outlook for the week

We expect the mixed sentiment  on profit taking and expectation of more corporate earnings in the face of higher yields outlook in the fixed income market and rising inflation. Bargain hunters are also espected to take advantage of pullbacks to buy into dividend stocks. Investors are watching with rapt attention as the government takes steps to resolve the country’s lingering FX challenges which has thrown many companies into a negative earnings positions.

However, retracement to the 101,000bps level and below is possible on correction as global and domestic events unfold.

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