Mixed Sentiments Continue, As Investors Reposition Portfolios, Seek Investment Direction

Market Update for July 4

Profit taking resurfaced on the Nigerian Exchange on Tuesday, halting the bullish momentum and positive sentiments as market players took profit from the recent weeks and days’ rally, while realigning their portfolios ahead of the half year earnings reporting season and this month’s Monetary Policy Committee meeting. These are against the backdrop of an environment where economic reform policies are driving hyperinflationary pressure in the face of an already heated economy and headwinds ranging from rising inflation, high interest rate of 18.5%, and insecurity, among others.
However, the market correction or pullback was expected after stock prices hit new highs on policy statements and actions that are now driving market sentiments. The profit booking resurgence is another opportunity for new entrance into the market as all eyes are on major events ahead in the new month. It is also noteworthy reminding all that profit taking is part and parcel of the market any time. As such, with the changing market dynamics and trading environment, we look forward to mixed outing and intermittent profit taking, since factors that pushed the market to this level remain unchanged so far. We also note that the earnings reporting season will reveal the state of corporate earnings and others, which would expectedly be a game changer, as we go into Q3, just as all eyes are on the expected appointment of economic managers and minsters by the new government.
The index has pulled back below 61,000 basis points and is heading for the 60,000 mark on selling sentiment and profit taking, even while continuing to trade at its 16-year market high on a high traded volume. In the process, many stocks have continued to hit new 52-week highs on inflow of fund and an expected fall in interest rates as the government looks to reform monetary policy after the recent unification the foreign exchange rates that made equity prices cheaper and more attractive on the exchange for foreign investors.
All major sectors of the market witnessed negative performance on profit taking as traders sold their position in low, medium and high cap stocks, especially banking, industrial, telecomm and others that weighed on the benchmark index. 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.
The NGX index action currently still trade above its T-line, 100-Day Simple Moving Average and 200DMA on the daily and weekly chart, despite the pullback on profit taking and selloffs on Tuesday in the midst of government economic and financial market reforms. This calls for a change in trading strategies and caution, amid the possibility of profit taking and correction. 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 as it slides down to trade at $75.87 per barrel in the midst of plan output cut Russia and continued uncertainty across the globe. Just as the fear of global recession persist on rate hike and mixed macroeconomic data from 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, Tuesday’s trading started slightly on the downside and was sustained for the rest of the session, on selloffs and profit booking across sectors and different class of stocks, a situation that pushed the NGX All-Share Index to an intraday low of 60,713.56bps, from its highs of 61,949.24ps, before closing sharply below it opening points at 60,715.04 point.
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 pressure as revealed by Investdata’s Sentiments Report showing 0% buy position and 100% sell volume. The total transaction volume index stood at 1.67 points, just as impetus behind the day’s performance was strong, with Money Flow Index reads 80.66pts, from the previous day’s 89.39pts, indicating that funds left the market to reflect selloffs.
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Index and Market Caps
The key performance NGX All-Share Index, at the close of Tuesday trading, shed 1,234.20bps closing at 60,715.04bps, from its 61,949.24bps opening level, representing a 2% decline. Market capitalization also fell by N672.03bn to N33.06tr, from the previous day’s N33.73tr, which also represented a 1.99% value loss.

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Tuesday’s downturn was driven by profit taking and selloffs in the shares of BUA Cement, Nestle MTNN, Stanbic IBTC, Zenith Bank, Accesscorp, Ikeja Hotel, PZ, Lafarge Africa, Dangote Sugar and Eterna, among others. This impacted negatively on Year-To-Date growth, reducing it to 18.5%, while Market Capitalization YTD gain dropped to N5.30tr, representing 18.47% above its opening level for the year.

Bearish Sector Indices
Sectoral performance indexes closed in red, except for NGX Oil/Gas that closed higher by 1.9%, while NGX Industrial goods led the decliners after losing 4.3%, followed by Banking, Consumer and Insurance with 3.9%, 1.3% and 0.5% respectively.
Market breadth turned negative as losers outnumbered gainers in the ratio of 44:33, while activities in volume and value were down after players executed 1.1billion shares worth N12.2bn, driven by trades in, FCMB, SterlingNG, Transcorp, UBA and Accesscorp.
Consolidated Hallmark Insurance and Eterna were the best performing stocks, gaining 10% each, closing at N0.99 and N25.40 per share respectively, on positive market forces and bullish run. On the flip side, LASACO and PZ lost 13.9% and 10% respectively, closing at N2.30 and N20.70per share, purely price adjustment for 15 kobo dividend and profit taking.

Market Outlook
Mixed sentiments and profit taking may continue as players reposition their portfolio amidst supportive reforms of the government, just as more policy pronouncements and appointments would 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 more march year end 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