Mixed Sentiments May Linger, As Investors Digest Impact Of 750bps MPR Hike In 5 Months, Q1 Earnings

Market Update for May 21

The Nigerian Exchange witnessed another mixed sentiments on Tuesday as ots benchmark NGX All-Share index remained range-bound after the Central Bank of Nigeria (CBN) Monetary Policy Committee ended its meeting voting for yet another hike in Monetary Policy Rate by 150bps. The decision, the committee noted in its communique is aimed at further checkmating the nation’s runaway inflation that hit a new all-time high of 33.69% in April, even as analysts worry that the apex bank is sacrificing the wellbeing of the nation’s already contracting real sector under the yoke of high cost of funds and production for inflation targeting. The latest hike has pushed the MPR to 26.25%, bringing total hike in just five months to 750 basis points, even as inflationary pressure over the period remains profound suggesting the need to try other tools, like strengthening the Naira to stem the impact of imported inflation.

The circular flow of funds is bound to continue as the hike will potentially attract more funds into fixed income instruments in the short-run due to higher yields. It is notworthy that the high inflation rate has thrown many investment windows into negative real return, especially the fixed income market, irrespective of the prevailing high yields. Also, the composite NGX All-Share Index that measures equity market performance is already down to a year-to-date gain of 31.44%, and is still on the downward spin.

The NGXASI closed slightly higher on Tuesday, extending the previous gain on a low traded volume and flat market breadth in the face of mixed sentiments and buying interests in some major sectors of the market and ahead of more corporate earnings. Also, all eyes are on the Q1 GDP expected to reveal the state of the nation’s economy in the first three months of 2024 and the performance of government’s economic reforms policies so far in the last one year. Macroeconomic indices remain mixed and are, indeed, contracting in the face of continuing foreign exchange market challenges and the high interest rate environment.

The gradual return of strength to the market was extended  at the end of Tuesday, but needs confirmation despite seemingly entering into the accumulation phase amid the changing market fundamentals, dynamics and mixed numbers released so far. Investors continue positioning and taking profit in highly priced and blue chip stocks. This impacted the market as would be expected.

However, the volatility and ranging market are creating buy opportunities for discerning investors and bargain hunters as the dividend income continues with qualification and payment dates to guide positioning. Market players have continued to reposition their portfolios on the strength of Q1 numbers, inflation report and higher rates. Dividend incomes are yet to provide some level of liquidity to support the market, despite the ongoing dividend payments and AGM meeting held so far.

Notwithstanding the NGX rebound in the midst of mixed sentiment across the major sectors of the market, after the benchmark index closed higher, investors and traders are taking advantage of the low prices and valuation to buy into value. This is normal, given the oversold state of the market and mixed technical position as revealed by the top chart pattern at the end of Tuesday’s trading which signals reversal of trend or continuation that needs to be confirmed. Already, the Q1 scorecards, expected corporate and economic numbers are the likely game changers, depending on the state of these numbers and unfolding happenings in the economy to further give insight and guide player’s decisions.

The NGX index’s action still trades above the T-line but below 50-Day Moving Average, confirming the mixed sentiment in the market and relatively weak momentum. Market players are also looking to more corporate actions to position for dividend income. Although, we see fiscal and monetary policies trying to return the nation’s economy to the path of recovery, despite the continued mismatch of policies and implementation style as oscillating oil production output persist.

AGM and board meeting notification continued on the NGX with the latest from Neimeth Pharmaceuticals, University Press, UBA among others, as Airtel Africa continues to update the market on its share buyback. Also, Initiates Plc, UACN and Seplat informed the market of their insiders dealing. Therefore, investors 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 market is on a downtrend but signals a slow return of strength and positive momentum on a mixed sentiment as revealed by candlesticks formation and momentum indicators. As ADX is looking down at 25.84, while RSI and Money Flow Index are mixed to read 41.56and 45.41 points against the previous session 40.32 and 48.53 points respectively. Market players should watch this current trend and trade with caution after the index had inched up again in the face of funds leaving the market slowly. Also, trading volume pattern remained mixed, to suggests wait and see in some sectors and position taking in the midst of a markup phase.

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Oil prices pulled back on Tuesday, as it continues its oscillation to trade at $82.36 per barrel in the midst of expected US Fed to keep higher rate for long and high inventories ahead of OPEC meeting in June. As global demand outlook remain mixed in the face of macroeconomic data from the two largest world economies. As Middle East conflict continued to drive unclear policy direction of major central banks. Geopolitical tension across the globe remained a major threat to many economies and the commodity market and other factors that impact oil price as it continued to rally. This trend may likely continue in 2024, this up and down movement that drive volatility. As middle East conflict and war in Ukraine last.

Tuesday’s trading opened in the upside and was sustained for the rest of the  session, despite oscillating on profit taking and positioning  in some stocks, a situation that pushed the NGX’s index to an intra-day high of 98,396.52bps from its lows of 98,175.79bps, before closing marginally above its opening figure at 98,285.33bps.

Market technicals for the session were positive and mixed, as volume was lower when compared to the previous session in the midst of a par breadth on a mixed sentiment as revealed by Investdata’s Sentiments Report showing 50% buy position and 50% sell volume. The total transaction volume index stood at 0.51 points, just as momentum behind the day’s performance was  relatively weak as Money Flow Index sliding  to read  45.41pts, from the previous day’s 48.53pts, indicating that funds left the market, despite closing in a slight green.

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Index and Market Caps

At the end Tuesday, the NGX All Share Index gained 108.75bps, closing at 98,285.33bps after opening at 98,177.88bps, representing a 0.11% up, just as market capitalization rose by N61.66bn, closing at N55.60tr from the previous day’s N55.54tr, which also represented a 0.11%  appreciation in value.

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Meanwhile, the upturn was driven by buying interests in the shares of MTNN, Nestle, Berger Paints, NB, PZ, Zenith Bank, Fidelity Bank and Omatek among others. This impacted mildly on Year-To-Date gain which inched up to 31.44%. Market capitalization YTD gain stood at N11.18tr, representing 36.70% above its opening level for the year.

Mixed Sector Indices

The sectoral performance indexes were mixed, as NGX Consumer Goods and Banking   closed higher by 0.79% and 0.16% respectively, while the NGX Insurance index lost 0.38%. Just as NGX Industrial goods and Energy finished flat.

Market breadth was flat  as losers were equal to gainers in the ratio of 20:20, while transactions in volume and value were down after investors exchanged  222.90m shares worth N5.15bn. Volume was driven by trades in  GTCO, Accesscorp, UBA, Transcorp and Jaiz Bank.

Berger Paints and Nestle were the best performing stocks, gaining 9.96% and 9.76% respectively, closing at N14.90 and N900.00 per share respectively on market forces and sentiment. On the flip side, IEI and Deap Capital lost 9.70% and 8.33% respectively, closing at N1.49 and N0.44per share, purely on profit taking and selloffs.

Market Outlook

We expect mixed sentiments to continue as investors digest the impact of 26.25% MPR in the midst of  low valuation, dividend investing and reactions to Q1 numbers as Insurance corporate earnings are expected with dividend announcements and CPI report today, while taking advantage of pullbacks to position and rebalancing portfolio.

This is amid the volatility and pullbacks that 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