Mixed Sentiments Yet, As Investors React To High TB Rates, Inflationary Pressure

Market Update for August 24

Profit taking and selloff resurfaced on the Nigerian Exchange on Thursday as negative sentiments hit some major sectors in reaction to the high rates and yield in Treasury Bills, and the delay in the release of audited half-year financials by first-tier banks, thereby fueling some level of uncertainty. The seeming high liquidity in the financial market even as it is yet to find direction amid the rising inflationary pressure has kept the bond market on a bearish mood
This is also threatening the ongoing portfolio rebalancing among many market players, even as the high rates or yields in the money market is mixed and unsustainable.
Consequently, discerning investors and traders are realigning their portfolios among the value oriented sectors on the strength of company earnings and sectoral prospects that will support earnings power and high upside potentials for price appreciation to hedge against the rising inflation.
In the midst of all these, the benchmark NGX All-Share index slipped lower on a very high traded volume and negative market breadth, even as the buying interests in consumer goods manufacturers within the Dangote Group that recently a proposed merger, in addition to Transcorp, among others. The candlestick formation at the end of Thursday’s trading signaledba pullback or correction ahead, after the index had broken the strongest resistance of 66,000bps level to test a new a high of 66,185.04bps before pulling back to close below its opening points, forming an inverse hammer.
The current state of the market and economy calls for cautious trading in the absence of positive news, as first-tier banks continue to notify the exchange and investors of likely delay in their audited half-year earnings reports that are expected to come with interim dividends offers. Smart traders and discerning investors are taking advantage of the market consolidation and new uptrend, after forming a descending triangle and flag to breakout the resistance level of 65,352.70 basis points on a relatively low traded volume while supporting a continuation of trend or reversal, which need confirmation as the market opens today. It is the time to buy into valued stocks with strong fundamentals, as the market looks forward to a favourable news that will trigger yet another round of buying interests. Also noteworthy is the mixed outlook in the fixed income market, amidst portfolio repositioning and sector rotation on the strength of company earnings’ power.
These situations are to further guide the ongoing portfolio repositioning ahead of first-tier banks’ half-year earnings reports. We know that the banking industry is a net beneficiary of foreign exchange revaluation gains that should support higher interim dividend payouts. So far, Accesscorp, Zenith Bank, UBA and Stanbic IBTC notified the exchange of a likely delay in the submission of their audited half-year results, even as all eyes are on the audited full-year financials of PZ, Flour Mills and Honeywell Flour for the periods ended May and March 2023 respectively.
Volatility is likely to continue, due to the changing economic fundamentals, and government reforms that are driving the reset in the financial market and trading environment. It should be taken against the backdrop of August being a very dicey month when eyes should be kept on the chart, trend, sentiment and volume at all times, using multiple time frame analyses to catch short, medium and long term buying breakouts, or sell breakdowns. All these are already impacting prices of equities in the face of the recent rate hike that made fixed income instruments attractive for risk averse investors, just as institutional investors continue digesting these numbers in the midst of rising inflation and opportunities within the equity space to hedge against its surging pressure.
The NGX index’s action is currently trading above the 65,000bps, ‘T line’ and 50-day moving average, attracting bargain hunters to position in fundamentally sound medium and low cap stocks amidst digesting of scorecards of many companies. It is therefore time to use technical tools, if you have been ignoring charts and fighting the trends, it is your chance to step up your game. It is pertinent to stress the fact that profit taking is part of market dynamics, which can occur at any time, as we look forward to a mixed outing and intermittent profit taking, since policy factors that pushed the market up are shaking, as market wait for favorable news and statements from the minsters.
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Oil price oscillation continued, as it inched up marginally to trade at $83.89 per barrel in the midst of contracting global economy as revealed by PMI and fear of rate hike in the face of second wave of inflation. 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, Thursday’s trading started sharply in the green till midday before pulling back to oscillate on selloffs and buying interests in some stocks. This situation pushed the Index to an intraday low of 65,368.54bps from its highs of 66,185.041bps, before closing slightly below the opening points at 65,401.82bps.
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 selling sentiment as revealed by Investdata’s Sentiments Report showing 4% buy position and 96% sell volume. The total transaction volume index stood at 1.16 points, just as the momentum behind the day’s performance was strong, with Money Flow Index reading 71.69pts, from the previous day’s 70.33pts, indicating that funds entered the market, despite closing marginally down.
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Index and Market Caps
At the end of Thursday’s trading, the NGXASI lost 90.99bps, closing at 65,401.82bps, from its 65,492.92bps opening level, representing a 0.14% drop. Market capitalization fell by N50bn to N35.80tr, from the previous day’s N35.85tr, which also represented a 0.14% value loss.
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The session’s downturn was driven by profit taking and selloffs in the shares of FBNH, Accesscorp, Zenith Bank, Presco, Wapco MTNN and Cornerstone, among others. This impacted mildly on Year-To-Date growth, which reduce to 27.61%, while Market Capitalization YTD gain went up to N6.53tr, representing a 28.29% rise above its opening level for the year.

Bearish Sector Indices
Sectoral performance indexes were in red, except for NGX Consumer goods that closed higher by 0.96%, while the NGX Banking led the decliners after losing 1.81%, followed by Insurance, Energy and Industrial goods with 0.24%, 0.09% and 0.08% respectively.
Market breadth was negative as losers outpaced gainers in the ratio of 39:19, while activities in volume and value were up after investors exchanged 583.09m shares worth N12.90bn, driven by trades in Transcorp, SterlngNG, Accesscorp, GTCO and Fidelity Bank.
Transcorp and Dangote Sugar were the best performing stocks, gaining 10% each, closing at N5.28 and N44.00per share each, on market forces and proposed merger news. On the flip side, FTNCocoa and Redstar Express lost 9.95% and 9.93%, closing at N1.81 and N2.63 per share, purely on the back of selloffs and profit taking.

Market Outlook
We expect mixed sentiment as market reacts to high Treasury bill rates and hyperinflationary environment of 24.1% rate in the midst of bargain hunting and portfolio repositioning ahead of first tier banks earnings reports expectation and sector rotation persists.
However, pullbacks are creating buying opportunities amidst economic reforms of the government, just as more policy pronouncements and economic managers hit the ground running, a situation expected to offer investment direction eventually.
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