Mixed Sentiments May Linger, As Investors Position Portfolios On H1 Earnings

Market Update for August 1

Trading on the Nigerian Exchange started the month of August on a mixed and negative note, amidst selloffs in banking, as well as medium cap stocks, thereby making five successive sessions of correction and profit-taking in the midst of weak corporate earnings and prevailing economic concerns.
The benchmark NGX All-Share index in the month of August for the past 10 years as revealed by historical data had closed red for eight years, and recorded gains just in 2020 and 2021, indicating how dicey the month has been in the last decade. In the same vein, post-election market performance for the month of August has been down in 2015 and 2019, giving investors an insight as to what should be expected in the new month. However, with the changing trading environment resulting from the new administration’s policy direction and economic reforms, market players should expect a mixed performance for the month.
Tuesday’s trading session recorded an above-average traded volume and negative market breadth as blue-chip companies and medium cap stocks witnessed selling pressure on the strength of their Q2 earnings released recently and perception for the mixed corporate earnings driven by FX losses and gains due to exchange rate unification policy of the Central Bank of Nigeria in the month of June. These lower-than-expected earnings are already impacting prices of equities as expected due to recent rate hike that made fixed income instruments attractive for risk averse investors, while institutional investors are still digesting these numbers in the midst of rising inflation and opportunity in equity space to hedge against inflation.
The NGX’s earnings reporting season is gradually coming to an end with mixed corporate numbers some of which beat market expectation while others were disappointing, and a few came flat, especially high cap stocks. The earnings performance of companies that comprise the NGX-30, which were mixed, slowed down the market, shifting it to the decline phase now, offering investors and traders an insight into the general mood. It is to be noted that Price/Earnings ratios of most companies on the exchange continued to reveal their underpriced state, with higher upside potentials to attract liquidity and positive sentiment, if the economic managers give clear direction of their policies and implementation.
In all these, there have been selloffs in some stocks, hence the need for investors to navigate the market now that many equity prices look cheap in the strength of some impressive earnings and relatively low prices. The market cycle of a correction and market bottom in the face of technical pattern of oversold market or individual stocks signals that a reversal is underway, as bargain hunters take advantage of the pullbacks to reposition their portfolios.
The market remains above the 64,000 mark, trading below the ‘T line’ and above 50-day moving average, to attract bargain hunters as sector rotation and portfolio rebalancing increased amidst the scorecards of many companies in the market. It is therefore time to use technical tools, if you have been ignoring the charts and fighting the trends, it is your chance to step up your game. At this current market mood, investors and traders should target leaders in the various sectors with strong fundamentals, and positive technicals as the market reversal is underway depending on the earnings power. At this time, it is pertinent to stress the fact that profit taking is part of market dynamics, which can occur at any time. This is despite the changing market structure as a result of the gradual return of foreign portfolio investors, even as we look forward to a mixed outing and intermittent profit taking, since environmental factors that pushed the market to this level remain unchanged so far.
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Oil price oscillation continued, extending its gains to trade at its four-month high of $85.69 per barrel in the midst of OPEC’s output cut driven by Saudi Arabia and suspension at Nigeria’s Forcados terminal. As rate hike by Feds, despite the seeming inflation cooling gradually across many economies. The Russia-Ukraine war remains a major 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 opened slightly in the downside and oscillated for the rest of the session on buying interest in some stocks and profit taking in blue chip companies and others that pushed the Index to an intraday low 64,003.17 basis points, from its highs of 64,340.24bps, before closing below it opening points at 64,192.20bps.
Market technicals were negative and mixed with a higher volume traded when compared to the previous session in the midst of breadth favoring the bears on a mixed sentiment as revealed by Investdata Sentiments Report showing 56% buy position and 44% sell volume. The total transaction volume index stood at 0.78 points, just as the energy behind the day’s performance was relatively strong, with Money Flow Index reading 61.53pts, from the previous day’s 59.09pts, indicating that funds entered the market.
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Index and Market Caps
The benchmark NGXASI at the end of Tuesday’s trading shed 116.25 basis points, closing at 64,192.20bps, from its 64,338.52bps opening level, representing a 0.23% decline. Market capitalization also fell by N79.08bn to N34.93tr, from the previous day’s N35.01tr, which also represented a 0.23% value loss.

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The downturn was driven by profit taking and selloffs in shares of Fidelity Bank, GTCO, Accesscorp, Zenith Bank, FCMB and Chi Plc, among others. This impacted negatively on Year-To-Date growth, which reduced to 25.25%, while Market Capitalization YTD gain slowed down to N5.81tr, representing a 25.22% rise above its opening level for the year.

Mixed Sector Indices
Sectoral performance indexes were mixed, as the NGX Insurance and Consumer goods closed 0.95% and 0.54% higher respectively, while the NGX Banking led the decliners after losing 1.94%, while NGX Energy and Industrial goods closed flat.

Market breadth was negative, as losers outnumbered gainers in the ratio of 37:22, while activities s in volume and value were up after investors exchanged 762.09m shares worth N7.71bn, driven by trades in Aiico, UBA, Mansard, ETI and FiCMB.

Dangote Sugar and Abbey Building were the best performing stocks, gaining 10% each, closing at N29.70 and N1.10 per share respectively, on market forces. On the flip side, John Holt and Ellah Lake lost 10% and 9.92% respectively, closing at N1.80 and N3.54per share, purely on the back of profit taking and selloffs.

Market Outlook
We expect mixed sentiments to continue as market players digest the corporate earnings and bargain hunters taking advantage of the pullbacks to rebalance their portfolios amidst supportive reforms of the government. Also, we expect more policy pronouncements, as economic managers hit the ground running, a situation that would offer investment direction.

Also, more Q2 earnings reports are expected 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, while also looking at the trends and events across the globe and domestically.

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