Mixed Sentiments, Cautious Trading Ahead, Amid Pullbacks As Q2 Earnings Season Kicks-Off

Market Update for July 13

Trading activities on the Nigerian Exchange on Thursday continued on a bearish note as the benchmark NGX All-Share index closed lower on the back of profit taking and selloffs as market players cash out their gains from the recent rally. At the same time, we are not ruling out panic selling by fearful investors or traders, while discerning investors are taking advantage of the pullbacks or price correction to position ahead of the June consumer price index report, corporate earnings expectation and announcement of ministerial list by the new government.
Similarly, all eyes are on the outcome of this month’s meeting of the Central Bank of Nigeria (CBN) Monetary Policy Committee, even as inflationary pressure has increased significantly with the ongoing economic reforms and unification the exchange rate.
The market has confirmed a decline phase, with the NGX trading below the T-line to breakdown the 64,000 and 63,000 psychological lines on reducing selling momentum, even as profit taking persisted during the session. Market pullback is not the time for investors to panic, rather it is an opportunity to reenter positions with strong fundamentals and positive technicals are created.
Anywhere in the world, stock markets have cycles of bull and bear, the bear market results from profit taking or pullbacks, following which investors should know that profit taking and positioning are part of market dynamics, these are why with the changing market structure due to the gradual return of foreign portfolio investors and changes in the trading environment. We look forward to a mixed outing and intermittent profit taking. It is noteworthy that factors responsible for pushing the market to this level remain unchanged so far, even as we expect that the earnings reporting season will reveal the state of corporate earnings and others.
Meanwhile, United Capital has kicked off the half year reporting season as early filler judging by its improved performance showing that top and bottom lines improved by 21% and 6% respectively, translating to a 78 kobo Earnings Per Share, while offering investors an insight into what they should expect from other financial services providers in the period under review.
Performance across the major sectors of the market were negative as profit taking dragged the NGXASI index further down, despite the buying interest in BUA Cement that pushed the Industrial goods index into the green. This was as more quoted companies notified the exchange and investors of insider dealings, their closed periods and board meeting dates to approve the half-year financials, while Flour Mills and Honeywell Flour informed the exchange of a delay in the release of their audited account for year-ended March 31.
Despite the pullback in the NGX index’s action the market is still trading above the 50MA, 100-Day Simple Moving Average and 200DMA on the daily and weekly chart in the midst of government economic and financial market reforms. This calls for a change in trading strategies and caution, amid the possibility of reversal or continuation of trend. As such, technical traders and discerning investors must be guided, because higher prices will lead to lower dividend yields, even when market Price to Earnings Ratio is relatively low. It however provides better opportunities for investors to hedge against inflation even when fixed income market yields look attractive and remain mixed in the face of high inflation.
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Oil price oscillation continued, extending its gains to trade at $81.40 per barrel while sustaining three weeks gains in the midst of Libya’s largest oilfield down and US inflation lower to 3% in 2 years and weak dollar, as rate hike persists across many economies. Even as the Russia-Ukraine war remain a concern, the prevailing high interest rate regime and slowing inflation. Also, supply tightened due to the Russia-Ukraine conflict that entered the second year. This up and down movement in oil price, has continued to drive volatility across markets.
Meanwhile, Thursday’s trading opened on the downside and was sustained throughout the session on profit-taking in blue chip stocks and large cap companies that pushed the Index to an intraday low of 62,729.80bps, from its highs of 64,046.90ps, before closing below it opening points at 62,748.94bps.
Market technicals were negative and mixed with a lower volume traded when 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 0.82 points, just as energy behind the day’s performance was strong, with Money Flow Index reads 79.41pts, from the previous day’s 83.74pts, indicating that funds left the market.
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Index and Market Caps
Thursday’s session closed with the key performance NGX All-Share index losing 1,297.99bps to close at 62,748.94bps, from its 64,046.93bps opening level, representing a 2.03% decline. Market capitalization also fell by N706bn to N34.17tr, from the previous day’s N34.87tr, which also represented a 2.03% value loss.
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Thursday’s downturn was driven by selloffs and profit taking in the shares of MTNN, Stanbic IBTC, FBNH, Accesscorp, Mansard, Eterna, and NB, among others. This impacted negatively on Year-To-Date growth, reducing it to 22.43%, while Market Capitalization YTD gain increased to N6.88tr, representing 22.40% above its opening level for the year.

Bearish Sector Indices
Sectoral performance indexes closed lower, except for the NGX Industrial goods that inched 0.72% up, while NGX Banking led the decliners after losing 6.6%, followed by Insurance, Oil/Gas and Consumer goods with 4.1%, 0.70% and 0.10% respectively.
Market breadth was negative as losers outnumbered gainers in the ratio of 56:19, while activities in volume and value were down after traders transacted 798.5 million shares worth N10.4bn, driven by trades in, UBA, FBNH, Transcorp, FCMB and GTCO.
John Holt and Dangote Sugar were the best performing stocks, gaining 10% and 9.98% respectively, closing at N1.65 and N29.85 per share respectively on positive market forces and news of an ongoing merger talks with sister companies- NASCON Allied Products and Dangote Rice. On the flip side, Sovereign Trust Insurance and Stanbic IBTC lost 10% each, closing at N0.45 and N61.20per share, purely on selloffs and profit taking.

Market Outlook
We expect mixed sentiments on cautious trading and possible positive catalyst in the midst pullbacks and portfolio realignments to support a rebound, as the earnings season has kicked off, supported by more policy pronouncements and the appointments of minsters to offer investment direction. Also, Q2 earnings reporting season draws closer to confirm the real state of the company performance and attract liquidity in the midst of markdown dates and the release of remaining audited accounts.
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. Also looking at the trends and events across the globe and domestically.

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