Mixed Sentiment Yet On Portfolio Realignments As Investors Bet On Inflation Data, Audited Earnings

Market Update for February    13

Tuesday’s trading activities on the Nigerian Exchange was mixed session as profit taking resurfaced at the consolidation and distribution phase of the market due to selloffs in some major sectors. This halted two successive sessions of bull transition on a selling sentiment.

The composite NGX All-Share index thereby closed lower on a low traded volume and negative market breadth reflecting a new wave of selloffs that started when the big trend formed a double top chart pattern. This signals the onset of correction or pullback in the midst of change in fixed income market outlook especially the money market instrument rates that triggered the flow of funds out of other alternative investment windows, while portfolio rebalancing continued.

Already, all eyes are on the January inflation reports expected to hit the market Thursday, revealing the true position of yields in the fixed income market. It is no news that the prevailing hike in inflation and interest rates have eaten up the purchasing power of Nigerians. The fact that it has also cut off savings reflect a gloomy economy. That notwithstanding, the Central Bank of Nigeria (CBN) is likely to hike its benchmark Monetary Policy Rate at the committee’s in a forthnight, under the guise of checkmating the rising inflation even as analysts have argued that it is more of a structural problem especially with the worsening level of insecurity that has kept farmers away from their farmlands.

As noted earlier, investors and traders continue to reassess opportunities in money market instruments as early filers start releasing their full-year numbers any moment from now, along with dividend declarations to guide investors decision on yields and timing. The NGX index’s action pulled back, trading flat on the T-line, which signals that the decline phase is underway, depending on market forces, and ahead of the 20-Day Moving Average. The correction and mix trend in February will continue before another rebound on the strength of audited earnings reports and dividend season in the midst of volatility.

The NGX witnessed selling sentiments in the midst of continued sector rotation and portfolio reshuffling, as pullbacks create buy opportunities for dividend players ahead of company audited accounts. Investors should watch out for the value areas of resistances and supports 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 and growth prospect of the economy in the face of rising macroeconomic headwinds that will support a revaluation of assets.

The equity market is 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 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 remains flat on the T-line on daily basis in the midst of high volatility and mixed momentum to trade above the short and long term Moving Averages on the daily, weekly and monthly time frame. Portfolio rebalancing on the exchange continued in the face of earnings season and volatility.

Tuesday’s candlestick formation revealed a reversal or continuation of uptrend, depending on market forces and sentiments.  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 weakness of momentum indicators continued with the market puling back at its overbought region, with the ADX looking down and reading 70.73, while RSI and Money Flow Index are mixed at 70.80 and 59.92 points against the previous session 72.27 and 64.20 points respectively. This should be a concern for investors and smart traders as they trade with caution because funds are leaving 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 negative.  Also, the anticipated financial market and economic reset in 2024, comes with challenges and huge opportunities to create wealth for smart investors and traders.

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Oil price pulled back on Tuesday to continue its oscillation, as it trades at $82.69 per barrel in the midst of US inventories rise and inflation on the rise as revealed January reports. Just as the escalating Middle East conflict, and that of Ukraine and Russia war which has persisted in the face of fear of Russia attacking Norway’s oil and gas installations.  This 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.

Meanwhile, Tuesday’s trading started marginally in the upside and oscillated before pulling back for the rest of the session on profit taking in banking stocks, among others, a situation that pushed the NGX’s index to an intraday low of 101,585.70 basis points, from its highs of 102,062.10bps, before closing below its opening figure at 101,707.70bps.

Market technicals were negative and mixed, as volume was slightly higher 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 26% buy position and 74% sell volume. The total transaction volume index stood at 0.33 points, just as impetus behind the day’s performance was relatively strong as Money Flow Index is  looking  down at 59.92pts, from the previous day’s  64.20pts, indicating that funds left the market.

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Index and Market Caps

At the end of Tuesday’s  trading, the NGXASI shed 334.62 basis points, closing at 101,707.70 after opening at 102,042.32bps, representing a 0.33% decline, just as market capitalization fell by  N183.10bn, closing at N55.65tr from the previous day’s N55.84tr, which also represented a 0.33% depreciation in value.

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The downturn was driven by profit taking and selloffs  in the shares of  FBNH, UBA, Zenith Bank, PZ, NB, Cornerstone, Chams and CWG, among others, which impacted negatively on Year-To-Date gain which fell to 36.02%. Market capitalization YTD gain stood at N14.65tr, representing 36.03% above its opening level for the year.

Mixed Sector Indices

The sectoral performance indexes for the session were mixed, as NGX Insurance  and Energy   index  closed higher by  1.13% and 0.09% respectively, while, NGX Banking led the decliners after losing 1.85% followed by Consumer goods and Industrial goods  with  0.22% and 0.10% respectively.

Market breadth turned negative with loser’s outnumbering gainers in the ratio of 29:24, while activities in volume and value were mixed after investors exchanged 263.19m shares worth N4.30bn. Volume was driven by trades in, Veritas Kapital, UBA, Fidelity Bank, Transcorp and Zenith Bank.

Honeywell Flour Mills and Juli Pharmacy were the best performing stocks, gaining 9.92% and 9.90% respectively, closing at N4.32 and N1.11 per share respectively on market forces and sentiments. On the flip side, PZ and Morison Industries lost 9.87% and 9.84%, closing at N25.10 and N2.75 per share, purely on selloffs.

Market Outlook

We expect mixed sentiment to continue on profit taking and portfolio repositioning ahead of  January CPI  and audited corporate earnings with dividend expectations amidst 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




Tel: 08028164085, 08179547605