Mixed Sentiments May Linger On Expected Markdowns Amid Illiquidity, Interim Dividends

Market Update for the Week Ended August 19 and Outlook for August 22-26

The benchmark All-Share index of the Nigerian Exchange achieve new lower lows last week on a mixed momentum and lower market metric in the volume and value, reflecting the low liquidity and indecision among market players. The better-than-expected corporate numbers have so far revealed the undervalued state of many stocks and their higher upside potential, especially as many stocks now trade near their 52-week low, with low Price-Earnings Ratios, looking at the market value of these companies on the exchange.

As a player on the Nigerian Exchange, how prepared are you? Note that understanding stock market dynamics will help you see bigger opportunities and record gains in your portfolios in the remaining few months of 2022. Also, the fact that this is a pre-election year could offer great deals and buying opportunities on the NGX. In fact, there are opportunities to buy some really outstanding companies in earnings performance and positive technicals right now, regardless of the low liquidity in the market due to the rate hike by the Central Bank of Nigeria (CBN) to checkmating the rising inflation that have refused to abate.

Traders and investors should consider this prevailing market conditions to load up some oversold blue-chips trading on the major sectors and indexes that are leaders, which may be on their way to a strong rebound. This is notwithstanding the cautious trading in stock markets and oil in the international market, just as some Pension Funds Administrators and big investment banks are still bullish. NGX index action and other indexes are making lower lows and lower highs to reveal the prevailing trading patterns in the midst of strong earnings, low liquidity and mixed sentiments.

The index action or chart above shows what is happening with supply and demand dynamics, regardless of how you and others feel above the whole market direction, high inflation, interest rate hike, low liquidity and confidence.

Noteworthy also is the fact that some corporate results came below expectations, especially low and medium cap companies that posted mixed and even disappointing numbers, which is why your stop-loss and exit strategies should guide you at a time like this. We note also that ahead of next year’s general elections in the country, the prevailing insecurity and economic uncertainties as seen through the rising inflation and interest rates, continue to taking a toll on the value of the Naira, while the soaring national debt remains a major source of concerns among equity and fixed income investors at this moment.

In all these, there is position taking in the equity market, hence the need for investors to navigate the market now that many stocks look cheap on the strength of impressive earnings and relatively low prices. The market cycle of bear situation and market bottom in the face of technical pattern of oversold market or individual stocks signal that uptrend is underway, as bargain hunters take advantage of pullbacks and low prices to reposition their portfolios.

The pullbacks on the NGX make stocks cheaper, as revealed by the prevailing low P/E ratio and post-COVID impressive earnings performance of listed companies that had supported the NGX rally and stability over the past three years, despite the low participation of foreign portfolio investors. These strong earnings have continued to support the market so far, just as the corporate numbers released remain impressive, despite the harsh economic environment, due to the high cost of production, rising inflation and high interest rate. This is occasioned by the war between Russia and Ukraine, and the mismatch in economic policies by the government. Also, the market closed below 50,000 mark, trading below the ‘T line and 50-day moving average, to attract bargain hunters as sector rotation and portfolio rebalancing increased amidst the inflow of more corporate earnings as all eyes are on first tier banks results.

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Movement Of NGXASI

It was a bearish trading week with four sessions of down markets and a day of up amid selloffs in high priced stocks, and price adjustments for dividend payments and blue-chips, which continues to drive the oscillation and pullbacks. These are creating opportunities for players to reposition their portfolios, amid interpretation and analyses of macroeconomic data and earnings released so far. Also, all eyes are on the July Consumer Price Index and more half-year earnings reports with higher possibility of interim dividends, especially from the first-tier banking stocks.

Trading for the week, opened on a negative note, extending the loss of the previous session by 0.01%. This trend was reversed on Tuesday when the index gained 0.16%, pulling back at the midweek by 0.04%, which was sustained on Thursday and Friday when the market lost 0.27% and 0.29% respectively on the markdown in MTNN. These brought the week’s total loss to 0.59%, compared to the previous week’s 2.09% loss.

Cumulatively, the benchmark NGX All-Share Index shed 273.45 basis points, closing at 49,370.62bps, compared to the week’s 49,664.07bps opening level for the week, touching an intra-week low of 49,367.26bps and a high of 49,737.86bps, after opening the week at 49,664.07bps. Market capitalisation also shed N118bn during the period, closing at N26.62tr, from the previous week’s N26.79tr, which also represented a 0.58% value loss.

Low and medium cap stocks dominated the week’s advancers table that attracted mixed sentiments amid volatility and pullbacks in high priced stocks and others. Also, notable is the fact that investors are taking advantage of the pullbacks.

Market breadth for the week was negative as losers outnumbered gainers in the ratio of 21:41 on selling sentiments as revealed by the investor sentiment report showing 1% ‘buy’ volume and 99% sell position. Money Flow Index was looking down at 42.46bps from the previous week’s 50.61 points, an indication that funds left the market on a weekly chart to reflect the high yield in fixed income instrument and others, just as daily time frame money flow index was equally down, revealing that funds exited the market.

The NGX index action on a weekly and daily time frame pulled back on a mixed sentiment of selling momentum, as the market remains strong in the midst of increased volatility and selloffs. We note also that the index is trading below the ‘T’ line and 20-day moving average to signal the likelihood of breakdown and reversal, depending on liquidity level and reaction to earnings report. The major strong support level of 49, 188.89bps after testing 49,000.12bps on a low traded volume to remain above the 50-day moving average. The candlestick formation, at the end of the week, showed sellers are in control, as investors and analysts digest macrocosmic data, and other factors to reposition their portfolios for Q3 and beyond. The candlestick pattern indicates continuation of the trend, depending on market forces in the new week.

Mixed Sectoral Indices

Sectorial performance indexes for the week were mixed, as NGX Banking and Industrial Goods closed 0.65% and 0.28% higher respectively, while the NGX Insurance led the decliners, after losing 1.40%, followed by Consumer goods and Energy with 1.03% and 0.87% respectively.

Activities in volume and value terms were down as brokers traded 823.01m shares worth N12.23bn, compared to the previous week’s 1.51bn units valued at N13.55bn, with volume driven by Financial Services, Services, ICT industry, Consumer Goods sectors. Specifically, the week’s volume was driven by trades in Capital Hotel, FBNH, Etranzact, UBA, Transcorp and Accesscorp.

Prestige Assurance and Neimeth International Pharma were the best-performing stocks for the week after gaining 18.18% and 9.29% respectively, and closing at N0.52 and N1.53 per share on market forces. On the flip side, Japaul Gold and Courteville Business Solutions lost 23.68% and 21.43% respectively, at N0.29 and N0.44 per share, purely on selloffs and profit taking.

 Outlook for the week

We expect a mixed trend and sentiment to continue on expected markdown in the share of Okomu Oil. Custodian Investment, Cutix and NNFM in the midst of low liquidity, as investors digest economic data and half-year corporate earnings released so far, and ahead of interim dividend from the Tier-1 banks. Also, players are repositioning their portfolio on the strength of earnings reports, as market players continue to analyze the interplay of Purchasing Managers’ Index and industrial output. Also, investors and traders continue reacting to the earnings power, as the revaluation of quoted companies on their earnings performance and growth prospects continue.

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Ambrose Omordion

CRO|Investdata Consulting Ltd




Tel: 08028164085, 08179547605