Mixed Sentiments Ahead As Investors React To Inflation Data, Q3 Earnings Inflow, Policy Initiatives

Market Update for October 18

It was a mixed trading session on the Nigerian Exchange at the midweek as the benchmark NGX All-Share index extended its bull transition for a second consecutive day with a marginal gain on an above average traded volume and positive market breadth. Also, buying interests in banking and insurance stocks continued in expectation of more corporate earnings hit the market, giving players an insight into what Q3 GDP will look like and the full year results of listed companies with possibility of higher payouts on the strength of performance so far.
There has fundamentally been a spotlight to buy real estate backed stocks for some time, given the explicit polices of government to inflate prices of goods and services with the recent moves by the Central Bank of Nigeria (CBN) which gives the 43 previously banned items access to FX at the official window. It is the historic inflation hedge, yet it has been among the worst performing asset classes over the past five years. Post Covid-19, stock market, commodities and others had done well, while real estate backed stocks and REIT have under-performed. So in this hyper-inflationary environment, discerning investors should start looking the way of Julius Berger, UPDC, UDPCREIT and other companies that the demand is inelastic in nature, or price.
On the strength of improving transaction volume, positive momentum and flow of funds into equity space as revealed by the money flow index, investors and traders should continue to take advantage of the ongoing oscillation and pullbacks in some major sectors of the market to reposition their portfolios as more scorecards are expected in the market. Also, the market awaits positive catalysts in the form of policy statements from economic managers to boost confidence and perception, even with the ongoing decline in the fixed income market rates and yields in the midst rising inflation, which has gradually triggered flow of funds into the equity space, as revealed by money flow index, ahead of more Q3 financials.  
The ongoing geopolitical tension will continue to drive global and domestic market volatility, so investors and traders anywhere in the world should factor in this uncertainty to their trading and investment plans always. The NGX index’s action still trades above the T-line and 50 DMA, as more company’s board meeting dates draw closer for approval Q3 numbers. The index’s action stayed within the consolidation range as it retraced up. 
Amid raging concerns over macroeconomic headwinds in the country today, Q3 earnings expectation, there are other concerns such as the mixed outlook in fixed income yields as the bond market remains bearish, with the Naira crossing the N1,000/US Dollar threshold, and rising inflation, among others. Owing to the cautious environment pervading the nation’s equity market, it is important that you trade and invest wisely ahead of events and factors that will shape the market in this last quarter of this year. Despite the mixed sentiment witnessed so far, the market’s big uptrend remains intact, in the midst of a material shift in the index and the ongoing volatility. 
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Oil price oscillation continued, as it slides to trade at $91.03 per barrel in the midst of escalating middle east crisis, even when world leaders are moving to contain the situation. There is potential for another 1973 like oil embargo, as OPEC member Iran called for just that, sanctioning Israel and likely countries supporting Israel. Even when some nations are already looking the way of Venezuela which is also an OPEC member. However, the soaring Inflation which we believe would be sustained on the back of the due geopolitical tensions, at a time the Russia-Ukraine war entered its second year, and remains a major concern, aside the prevailing high interest rate regime. Also, supply tightened due to the Russia-Ukraine This up and down movement in oil price, has continued to drive volatility across markets.
Meanwhile, midweek trading opened in the green and was sustained for the rest of the session, despite oscillating on profit taking and buying interest across some sectors. This situation pushed the Index to an intraday high of 67,440.22bps from its lows of 67.326.12ps, before closing above its opening figure at 67,326.12bps.
Market technicals were positive and mixed with a higher volume traded, when compared to the previous session, in the midst of breadth favoring the bulls on a selling sentiment as revealed by Investdata’s Sentiments Report showing 24% buy position and 76% sell volume. The total transaction volume index stood at 0.84 points, just as the impetus behind the day’s performance was relative strong, with Money Flow Index reading 62.56pts, from the previous day’s 54.61pts, indicating that funds entered the market.  
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Index and Market Caps
The benchmark NGXASI, at the close of the day’s trading, inched up by 27.11bps, closing at 67,353.23bps, from its 67,326.12bps opening level, representing a 0.04% up. Market capitalization also rose by N15.28bn, closing at N37.00tr, from the previous day’s N36.99tr, which also represented a 0.04% value gain.   
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This session’s upturn was driven by position taking in the shares of UBA, Zenith Bank, GTCO, Mansard and Eterna, among others. This impacted mildly on Year-To-Date gain which inched up to 31.42%, while Market Capitalization YTD gain stood at N8.90tr, representing a 33.37% rise above its opening level for the year.

Bullish Sector Indices
Sectoral performance indexes were higher, except for the NGX Industrial Goods that closed 0.06% lower, while the NGX Banking led the advancers after gaining 0.74%, followed by Insurance and Energy with 0.27% and 0.22% respectively.
Market breadth was slightly positive as gainers outnumbered losers in the ratio of 20:18, while activities in volume and value terms were mixed, after investors exchanged 397.56m shares worth N4.70bn, driven by trades in Wema Bank, Accesscorp, UBA, Fidelity Bank and GTCO.
Guinea Insurance and Eterna were the best performing stocks, gaining 9.09% and 6.86% respectively, closing at N0.24 and N14.80per share respectively, on market forces and earnings expectation. On the flip side, CWG and RT Briscoe lost 10% and 8.77% respectively, closing at N8.55 and N0.52per share, purely on the back of selloffs and profit taking.

Market Outlook
We expect mixed sentiments to continue on reaction to latest CPI of 26.72%, earnings released on Tuesday, bargain hunting and portfolio repositioning ahead of more Q3 earnings reports in the face of sector rotation. Meanwhile, all eyes are on the fiscal and monetary authorities to give direction of the government reforms and policies so far.
However, pullbacks are creating ‘buy’ opportunities amidst the economic reforms of the government, just as more policy pronouncements and economic managers hit the ground running, a situation expected to offer investment direction eventually.
We note that discerning investors have continued to target fundamentally sound companies and defensive stocks to protect their portfolios. Any pullback at this point may add more strength to upside potentials. As such, investors should take advantage of price rally to take profit, while also looking at the trends and events across the globe and domestically.

Ambrose Omordion
CRO|Investdata Consulting Ltd
Tel: 08028164085, 08179547605