Market Update for the Week Ended October 28 and Outlook for October 31-Nov 4
In its last full trading week for the month of October, the Nigerian Exchange again closed mixed on a lower traded volume, amid the negative momentum, thereby extending the negative outing for a second consecutive week despite the corporate earnings reporting season entering its peak period, and the several company’s scorecards that beat market expectations.
Despite the selling sentiments prevailing in the market, discerning investors and traders continue to rebalance their portfolios on the strength of the better-than-expected Q3 corporate performance in a week when the Central Bank of Nigeria announced plans to redesign and redistribute the nation’s currency. The decision is expected to curtail inflation and mop excess funds outside the banks vault, apart from the continued sectoral rotations as year-end seasonality draws closer. The NGX All-Share index made lower lows on selloffs and profit taking in Dangote Cement, Airtel Africa and other blue chip stocks which hampered it, as it broke down various psychological levels, making equity prices cheap and attractive for investment.
The increasing economic headwinds, including higher interest rates in particular, which could have an outsized but delayed impact on the economy as central banks around the world seek to tame inflation. Global central banks have implemented 243 rate hikes so far in 2022, and this continues to drive every day market volatility, coupled with liquidity crisis due to monetary policy tightening and other factors.
Rate hikes take time to work their way through the economy, and the end result is a recession. Fixed income market instrument, especially as bonds are now pivoting from inflation to recession, so fourth-quarter rally in risk assets could materialize as some central banks “blink” on their current tightening policy and impressive earnings that support higher payout in the midst of prevailing low prices.
With the recent selloffs across some major sectors of the market and position taking in banking, healthcare, industrial goods stocks on the strength of earnings posted by these sectors to reflect mixed trend and selling pressure in some large cap and medium companies, while fear of election in 2023 continue to weigh on the market. It is noteworthy that recent earnings from the banking sector and others reveal the undervalued state of the market and individual stocks, amid expectations that the prevailing low Price to Earnings ratios and divergence in real value and current market prices could inspire a rebound. However, factors and seasonality needed to support the market are unfolding amid the inflationary pressure and slow economic recovery.
The low supply and demand in the market is also an indication that smart money can mark-up the price any time and without notice. We urge investors to, however, wait for confirmation of the trend, with bargain hunters already taking advantage of the back-to-back pullbacks to position in value stocks with strong earnings capacity.
Meanwhile, market volatility continues to support technical traders in the midst of prevailing mixed sentiments, resulting from profit taking and fear in the midst of relatively low volume and higher earnings yields that signal a possibility of higher payouts at the end of the year. This is especially true of those that suffered losses in the midst of the strong numbers posted by these companies, thereby revealing their undervalued state, as seen in the high dividend yields pointing to the possibility of discerning investors taking position to hedge against the soaring inflation.
The NGX index’s action on a weekly chart is still trading below the ‘T line’ and 50-day moving average, as selling sentiments persist in some sectors. Portfolio rebalancing has increased on impressive earnings and Q3 corporate actions. 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 is on uptrend movement on the strength of funds entering the equity space.
To navigate this current market situation profitably using fundamental and technical analyses to run, join investdata live sessions at noon every trading day “and also get investdata technical toolbox to play the current state of the market do suggest that discerning investors are gradually becoming greedy, while others are fearful, as seen in the recent range market. Despite the mixed sentiment witnessed, it is time to go shopping for undervalued stocks, sectors and the next insider playing opportunity.”
Oil price sustained its oscillation as it rebound again to trade at $94.63 on fear of recession, in the midst of supply tighten due to Russia Ukraine war. Also, weak demand and fear of recession around the globe on 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.
Movement Of NGXASI
It was another mixed trend of two down sessions and three of up market, after major sectors and blue chip stocks recorded loses, driven by price depreciations in Airtel and Dangote Cement that create opportunities for players to reposition their portfolios, amid stronger corporate earnings report and macroeconomic reports expectation.
The week’s trading started on a positive note, extending the previous session’s gain by 0.15%. This was sustained till midweek with index gaining 0.74% and another 0.15% respectively for Tuesday and Wednesday. But pulled back on Thursday and Friday by 0.52% and 1.23% respectively, bringing the week’s total loss to 1.09%, compared to the previous week’s 6.67% loss.
In all these, the NGX All-Share Index shed 484.09 basis points, closing at 43,912.64bps, compared to the week’s 44,396.73bps opening level, after touching an intra-week low of 43,671.26bps and a high of 44,887.55bps. Market capitalisation also fell by N237bn, representing a 1.09% depreciation in value during the period to closed at N23.92tr, from the previous week’s N24.18tr,
The advancers’ table for the period was dominated by low and medium cap stocks, amid mixed sentiment of buying and selling that hit high priced stocks due to volatility and portfolio repositioning. Also notable is the fact that investors are taking advantage of the price corrections to buy into value and high dividend yield companies.
Market breadth was negative as losers outnumbered gainers in the ratio of 31:29 on selling sentiment as revealed by investdata sentiment report showing 20% ‘buy’ volume and 80% sell position. Money Flow Index looking down to 10.75bps, from the previous week’s 18.55 points, an indication that funds left the market on a weekly chart to reflect selloffs that hits high priced stocks and others in the market.
The pullback on NGX index action may likely continue, depending on market reactions to the recently released numbers, as traded volume for the period remained low revealing low liquidity and absence of institutional investors while the bear transition continued on the daily time frame to trade below the T line on a selling sentiment and slow momentum. We note also that the index is trading below the ‘T’ line and on 50-day moving average on a weekly time frame to signal possibility of sustained rebound, which the state of Q3 financials and September consumer price index can support further or pullback.
Mixed Sectoral Indices
Sectorial performance indexes for the week were mixed, with the NGX Industrial goods and Banking closing 0.34% and 0.07% higher respectively, while the NGX Insurance led the decliners after losing 2.38%, followed by consumer goods and energy with 0.36% and 0.42% respectively.
Transactions in volume and value were down, as players crossed 598.82m shares worth N14.86bn, compared to the previous week’s 938.02m units valued at N16.70bn, with volume driven by Financial Services, conglomerates and ICT. Specifically, the week’s volume was driven by trades in Mutual Benefits Assurance, Sterling Bank, Fidelity Bank Zenith Bank and Chams.
RT Briscoe and BUA Cement were the best-performing stocks during the week, gaining 17.86% and 12. 90% up respectively, closing at N0.33 and N70.00per share on market forces and sentiment. On the flip side, NEM Insurance and Honeywell lost 15.16% and 11.25% respectively, at N3.75 and N2.13 per share, purely on selloffs and profit taking.
Outlook for the week
We expect a mixed trend on bargain hunting and reaction to companies financial, while all eyes are on more Q3 corporate earnings. Also, investors are repositioning their portfolios on the strength of Q3 earnings expectations, just as players continue react to the earnings power and revalue of quoted companies on their earnings performance. We note that income investors have sustained buying into dividend-paying stocks with high yields.
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