Market Update for October 24
Trading activities on the Nigerian Exchange sustained its positive outing, starting the week on the expectation of more corporate earnings, as well as mixed sentiment of low traded volume and negative breadth to maintain its seeming rebound on high priced stocks appreciation during the session.
Also, the benchmark NGX All-Share index has recovered slightly over the past three trading sessions, even as it is vitally important to look at this strength within the context of other data on the charts, focusing in on price action or structure and momentum. This is also true, especially now that about eighth companies on the exchange have reported their Q3 earnings so far, while over 70% have posted positive performances, while the remaining came below market expectation, especially from Geregu Power, and Unilever, among others.
Again, as we anticipated going into the peak of earnings season, the fundamentals do not match the performance of the financial markets, because fear is outweighing the facts, and it has been introduced into the market by the Central Bank of Nigeria (CBN) over the last five months through its decision to hike interest rates. This decision continues to propel the flow of funds around the market. The two biggest events in the market between this last quarter of 2022 and first quarter of 2023 are the MPC meetings and Nigeria’s general election outcomes.
As more corporate numbers hit the market, the question on the lips of discerning investors is whether or not these Q3 earnings could save the NGX from its recent free-fall in this season, as reactions are likely to extend to four or five weeks amid the wave of surprises and disappointments that comes with earnings season.
Over the next couple of weeks, most major companies will provide the market with updates on their scorecards and outlook for the rest of the year, and offers another chance to help activate the do-it-yourself traders and investors. One way to do this is by identifying deep value stocks owned and controlled by billionaire investors, while following my approach of combing fundamentals and technicals analyses in taking investment decision.
The NGX All-Share index’s action closed marginally high on a low traded volume and improved buying interest across some major sectors of the market where prices are resetting on the basis of value and sound fundamentals ahead of their quarterly earnings reports. Here, understanding the big picture and the outlook of the expected financial reports of the companies in this changing business and economic environment across the globe and locally will help market players reposition their portfolios on the strength of the 11 sectors of the market performance and sentiment rank from strongest to weakest right now. Meanwhile, bargain hunters are capitalizing on the persisting low valuation and divergence from real value in expectation of closing gap in the future dates for profit and gains.
In the current market situation traders or investors need to up their games, understanding the power of perception or sentiments cannot be overemphasized in stock trading or investing, seeing the impact of aggressive hawkish monetary policy across the globe, with investors reacting to different news and statements. The UK experience, coming after the World Bank and IMF’s continued warning that the central banks should rethink and avoid pushing the global economy into yet another recession. We see that is already happening in UK, China, Japan and others. It is time for the Nigerian central bank and its Monetary Policy Committee to have a rethink before things go further out of hand.
There is still a bull case even in this high interest rates atmosphere, rising inflation and slowing industrial output as a result of policy changes and uncertainty around the globe, there are sectors, industries and individual stocks still seeing positive activities from traders and investors. There are equity players you should pay attention to, amid the corrections ongoing and the NGX index action that creates buying opportunities in some sectors and individual defensive stocks with high dividend high yield and positive earnings growth.
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The oscillation in oil price continued as it trades at $92.42, in the midst of confusion in US oil exports to France falling to zero, US LNG production decline despite new prime emerging in UK. Also, the fear of global recession and supply tighten due to Russia Ukraine war that are getting worst. Coupled with the impact of hawkish monetary policy by central banks, just as China COVID-19 lockdown come to an end. The up and down movement of oil price also continues to drive volatility in the face of rising interest rates and inflation. Despite the bailout package of the Chinese government to simulate economic activates and stable employment, as well as that of Germany aimed at managing the energy crisis.
Monday’s trading started slightly in the downside and oscillated, rebounding by the afternoon on buying interests in blue chip companies and profit taking in the banking stocks. This situation pushed the NGX’s index to an intraday high of 44,491.60bps from its lows of 44,368.20bps before closing above its opening level at 44,461.63bps.
Market technicals were weak and mixed, with lower volume of trade than the previous session in the midst of breadth favoring the bears on a buying sentiment as revealed by Investdata’s Sentiments Report showing 76% buy position and 24% sell volume. The total transaction volume index stood at 0.46points, just as impetus behind the day’s performance was weak as Money Flow Index is looking up at 27.40pts, from the previous day’s 21.03pts, indicating that funds entered the market.
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Index and Market Caps
The NGX All-Share Index, at the end of Monday’s trading inched up by 64.90bps, closing at 44.461.63bps, after opening at 44,396.73bps, representing a 0.15%up, just as market capitalization rose by N35.4bn closing at N24.22tr, from the previous day’s N24.18tr, which also represented a 0.15% value gain.
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Meanwhile, Monday’s upturn was driven by demand for the shares of MTNN, Lafarge Africa, Fidson, Beta Glass, Redstar Express, Ardova, AXA Mansard and Lafarge Africa, among others, which impacted mildly on Year-To-Date gain, increasing it to 4.09%. Market capitalization gain YTD decrease to N1.12 billons, representing a 11.33% rise over the opening level for the year.
Bearish Sector Indices
Sectorial performance indexes were down save for NGX Industrial Goods that closed higher by 0.22%, while NGX Insurance led the decliners after losing 1.63%, followed by Energy, Banking and Consumer goods with 0.38%, 0.37% and 0.28% respectively.
Market breadth was negative as losers and gainers in the ratio of 18:8; just as transactions in volume and value were down, as investors exchanged 72.33m shares worth N2.17bn. Volume was driven by trades in Transcorp, NGXGroup, GTCO, Sovereign Trust Insurance and Fidelity Bank.
Redstar Express and BetaGlass were the best-performing stocks, gaining 8.22% and 5.90% respectively, closing at N2.37 and N43.95 per share respectively on market forces. On the flip side, Unilever and NEM Insurance lost 10% and 9.50%, closing at N10.80 and N4.00 per share, purely on selloffs on mixed earnings report and profit taking.
We expect mixed sentiments to continue on expectation of more financials in the midst of investors reaction and election uncertainty are taking advantage of the low prices to reposition ahead of more Q3 corporate earnings. This is just as banking stocks are gaining attention, despite profit taking that makes the sector more attractive for income investors, while portfolio rebalancing continues on bargain hunting in the midst of the worsening sovereign risks.
We note also the flow of funds into the fixed income segment on the rate hike by the CBN, as sector rotation persists. Analysts are also focused on the lookout for August CPI and flow of funds amid oil prices oscillation.
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