Mixed Trend, Outlook Yet On Rising Inflation, High Production Cost, But Reversal Possible

Market Roundup for Q1 2022

It was a bullish first quarter on the Nigerian Exchange with mixed trends, besides being a highly volatile start for the year 2022, extending the positive outing of the previous year, driven by buying effect in January ahead of the earnings reporting season. The rally during the period was supported by the listing of BUA Foods in January, and price appreciation by high cap stocks.

This was propelled by impressive corporate earnings and relatively low yield in the fixed income space, pushing funds to equities in search of higher returns, as investors sought to hedge against the heightening inflation. Within the period also, trading on the exchange maintained the third straight quarter of bull-run on a very high traded volume and positive sentiment, despite the ongoing war in Ukraine that started in February, changing investor sentiments and perception on the global and domestic economic front.

As such, in January 2022, the index recorded a robust 9.15% gain, which was sustained in February, before however, reversing in March on sell pressure, amidst panic trading and profit-taking that was triggered by concerns for the raging war in Ukraine and Russia. Consequently, the benchmark index lost 0.91% during the month, slowing down the quarter and YTD gain to 9.95%, while ushering in the Q2 season, as all eyes are on the 2022 first quarter earnings reports in this new month.  

The 2022 full-year corporate earnings reporting season that comes with strong momentum and mixed sentiments helped to reduce sell pressure with dividend news and high payouts, even as numbers released so far show the resilience of corporate Nigeria. This is noteworthy, given the effects of the COVID-19 pandemic, its omicron phase and Nigeria’s interminable insecurity on the economy as it still managed to sustain a recovery, as quoted companies posted positive numbers, notwithstanding the mixed, flat or even marginal decline in some of their numbers. 

The profit-taking, selloffs and the seeming gradual uptick in yields in the fixed income market combined to slowdown the NGX’s All-Share index and trigger sectoral rotation, thereby creating buy opportunities for discerning investors and technically inclined traders. The market enters its decline phase after breaking down the 47,000 basis-point strong support in the month of March when the index lost 0.91% after more than one month of consolidation.

The pullback occurred on the back of panic selloffs and flat volume, when compared to transactions recorded in the last quarter of 2021, amid the influx of numbers to the market with better than expected earnings and dividend news that translated to better dividend yields. 

During the period also, there were high volatility and skyrocketing of commodity prices like premium motor spirit or petrol, AGO and other energy products, a situation expected to put inflationary pressure as oil prices in the international market trade above $107 per barrel. This continues to propel global and domestic economic slowdown that may lead to another round of recession. The expected Q1 numbers will give further insights, being a leading index or parameter that tells what is happening in the economy and where it is headed. 

In the midst of this also was the news of oil theft and rising attacks in many states; made worse by the delay in implementing the year 2022 budget and fear of movement of goods and services arising from insecurity. Add this to the incidences of policy mismatch between the fiscal and monetary authorities, then you have a very unfriendly situation that threatens recovery in an economy with a GDP growth of 3.98%, compared to Q3’s 4.01% contraction.

The seeming economic recovery and the rise of crude oil price above the nation’s $65 budget benchmark are positive signs for the equity market, going forward, despite the ongoing volatility driven by concerns for the domestic economic and portfolio realignments, due to improving yields in Treasury Bills and Bonds. With the expected Q1 earnings reports and rising inflation in the new quarter, reversal is underway to halt the selling sentiments as dividend yields of blue-chip and growth stocks become better and more attractive.

The key performance index closed activities for the quarter on a positive note, the gain recorded on the last trading day of the quarter suggests a trend continuation with the market yet to respond to the last-hour rush to release numbers and corporate actions, due to relatively low liquidity in the market and the wait-and-see attitude of investors and traders.

As noted earlier, the audited scorecards of various listed companies released so far have given insights into what we should expect from different sectors and individual stocks. The possibility of prices reversing is high, amidst portfolio reshuffling on the strength of the 2021 full-year numbers and expected Q1 earnings reports in April. In the 63 trading sessions of the quarter, the NGX All-Share index recorded gains in 34, and was down in 29, resulting in a cumulative 9.95% gain, which happened, owing to price appreciations by high cap stocks in January and high dividend yields that attracted more inflows to the market.

Specifically, during the first quarter of 2022, the NGXASI gained a total of 4,249.04 basis points, closing at 46,965.48bps, compared to the 42,716.44bps at which it opened, after touching high of 47,613.70bps and 42,479.57bps lows. There was a high buying pressure, followed by mixed sentiment within the period, which impacted positively on the index and stock prices, pushing them higher to breakout various resistance levels and psychological lines.

Market capitalization, during the period, rose by N3.01tr, closing at N25.31tr, from N22.30tr, representing a 13.50% appreciation in value. The quarter’s total ‘sell’ volume was 13%, leaving ‘buy’ position at 87%, extending the previous three quarters of bull transition, while volume index for the period was 1.04.

Transaction volume for the period was slightly up by 1.69% to 21.61 billion shares, from 21.25 billion units recorded in the preceding quarter, just as market breadth for the period was at par with decliners equaling advancers in the ratio of 49:49. It therefore extended the preceding three quarters of up market as liquidity was mixed in equity assets due to factors mentioned above, a situation that may reverse in Q2 as the earnings season extends to April in expectation of 2022 Q1 numbers.

Mixed Sectorial Performance

Performance indexes across the sectors and market were mixed, as the NGX Insurance and Consumers goods closed lower by 6.03% and 5.96% respectively, while NGX Oil/Gas led the advancers after gaining 27.66%, followed by Mainboard, Premium, Industrial, Pension, NGX 30, NHX 50 and Banking with 12.85%, 7.83%, 5.39%, 4.95%, 3.99%, 1.64% and 0.79% respectively.

Despite the profit taking and selloffs in the last month of the quarter.  

Others are represented in the chart below, revealing investors’ mixed sentimentand indecision among traders, as the market’s Price-To-Earnings Ratio closed below 8x.

Best And Worst Performing Stocks For Q1

The best-performing stocks for the quarter under review were predominantly low and medium caps across the Oil/Gas, Services, Consumer Goods, banking and industrial sectors, led by Wema Bank, which gained 279.17% as a result of its share reconstruction. Academy Press gained 254%; and the 195% notch by RT Briscoe; just as SCOA Nigeria climbed 128.85% up, on market forces and sentiment; while Guinness Nigeria chalked 82.56%; among others.

The worst performing stock was Caverton, which lost 31.40%, amidst negative earnings and market forces; followed by UPDC’s 30.04% drop due to the unimpressive results that led to selloffs. Mutual Benefits Assurance’s share price declined by a further 27.27%, showing a display of weak sentiments, while others are profit taking and selloff. Livestock Feeds and Ellah Lakes lost 26.98% and 26.59% respectively.

Technical View

The NGX’s index action for the quarter was bullish, breaking out of the cup and handle chart pattern formation to signal uptrend, as the index rallied to breakout some strong resistance levels of 43.000, 44,000 and 47,000 marks in the midst of audited financial reports season before pulling back slightly in march on panic selloffs. At the same time, it is trading above its 50-Day Moving Average on the monthly and quarterly chart, despite the seeming mixed sentiments and high traded volume.

The trading patterns and momentum going forward are likely to change and improve, as investors react to the audited full-year numbers, portfolio rebalancing and repositioning, with dividend news and rebounding oil prices.

Market technicals for the quarter were mixed, a situation expected to change in the new month and quarter, which is a buying month and quarter as revealed by analysis of two decades old data by investdata Research. This is the situation, especially now that the trading environment is changing toward sector rotation to pinpoint hot stocks in different sectors with high upside potential and positive price actions supported by strong consumption to drive explosive sales in 2022.

Market Outlook

The mixed trend is expected to continue in the new month and quarter, even as market outlook remains mixed and dicey due to the rising inflation, mismatch in policies, high cost of production, change consumption pattern and concern over Ukraine war, even as yields in the fixed income market try looking up. We see the anticipated economic data and Q1 numbers in the new month strengthening recovery, despite the rising inflation, insecurity and flat liquidity. However, CBN extension of intervention funds single digit interest rate to next will support some of the sectors activities and performance in 2022

Investors should at this point avoid greed and instead ensure that their decisions are guided by predetermined investment goals and exit strategies with stop loss in place in any trade decision.  Again, the current breakout of 47,000 levels offers traders opportunities to position for the short-term, while investors should target fundamentally sound, and dividend-paying stocks for possible dividend income and capital growth now that many companies had made available their corporate actions to the market.

We look forward to see you at  Investdata Q2 Master Class Workshop at this  weekend, and it is our desire that you don’t miss out so that you can  smile to the bank later with the 5 Hot Stocks To Buy In Q2. 

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Ambrose Omordion

CRO|Investdata Consulting Ltd





Tel: 08028164085, 08179547605