Market Update for December 7
Profit taking resurfaced again on the Nigerian Exchange on Thursday after it had rebounded for two consecutive sessions, hitting another new all-time high in the midst of selloffs in banking stocks. This happened in the midst of the ongoing year-end seasonality and portfolio rebalancing ahead of the earnings reporting and dividend season in Q1 2024, when many companies with December year-end will be submitting their unaudited and audited financials for 2023.
The market was expecting that the recent moves in banking stocks will usher in the Santa Claus rally, but feelings and reactions to the August date for stress testing of the capital adequacy ratio of Nigerian banks with international operations has seemingly slowed down the momentum. Ordinarily, all the banks involved are strong enough to meet up the shortfall as required.
Specifically, these banks, judging by their 2023Q3 numbers are healthy, and boast of robust balance sheets, profitability levels, and even strong earnings to support higher dividend payouts, despite the proposed banking sector recapitalization to boost their capital base to enable them effectively drive the expected $1tr economic envisaged by government. The stress testing is expected to confirm the exposure levels of Nigerian banks to global risks resulting from the recent exchange rate volatility, heightened inflation, and geopolitical tension, among others.
Consequently, discerning investors are expected to take advantage of any market moves to create more wealth by taking the right decision at the right time.
There is now selling momentum in the face of index pulling back to its consolidation and ranging mood, which is a bearish sign, after forming a top reversal pattern that support correction. This is amidst the continued disconnection of the stock market from economic reality of the country with headwinds that remain a major source of concern for investors. This situation calls for cautious trading among market players, amidst contracting economic activities as indicated by the November Purchasing Managers index that fell to 48 points from 49.1 points in October. There is also the mixed outlook for the month of December and Q1 2024 due to the current policy direction of the Central Bank of Nigeria (CBN).
We are worried that the apex bank is heating up the already weak economy with its latest plans for stress testing of the nation’s banks, coupled with how the government hopes to implement the 2024 national budget and grow the country into a US$1tr economy over the next seven years. This remains unclear to the investing public and would require a road map, even as we hope that managers of Nigeria’s economy will formulate the right policies to achieve the expectation, among others while ensuring fiscal responsibility and maintaining a frugal disposition- a wide departure from the current norm. Already, we note that there is a divergence in economic policies and expectations, and hope to see how the government and its economic managers will achieve the target under the current policy direction.
Also, we warn that the policy tightening disposition of the CBN at this time could result in an unintended economic contraction in an environment where growth is already weak and fragile, with high cost of funds further pushing cost of production and services higher, driving prices northward. This is made worse by imported inflation due to the lingering foreign exchange challenges, among others. The two consecutive quarters of rate hikes, as well as the proposed fresh round of bank recapitalization are expected to drive the much desired economic development in the face of a significant devaluation of the Naira, just as the surging inflation is bound to drive mixed outlook in the market and economy in the first half of 2024.
The selloffs in the midst of negative trade metrics supported the market, as momentum indicators signal weakness, MACD convergent with index action indicates bearish divergence on low traded volume and negative market breadth. As dividend paying period draw closer. A glimpse into what we should expect at year end has been provided by the unaudited Q3 corporate earnings reports released by listed companies.
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Oil price oscillation continued, as it rebounded to trade at $75.49 per barrel in the midst of crude price setting for a seventh weekly loss in a row, despite OPEC output cuts. Even as middle east conflict is taking another dimension. As rate hike pause by some of the central banks due to cooling inflation continue ahead of 2024. The influence of demand and supply oil are worsened by the geopolitical tensions rising across the globe at a time the Russia-Ukraine war gradually approaches its third year. The war remains a major cause for concern with much more at stake than previously thought. The supply tightening due to the Russia-Ukraine war will propel the up and down movement in oil price, which also drive market volatility across the globe.
Meanwhile, Thursday’s trading opened slightly in the green, before oscillating to pull back on profit taking in banking stocks and other blue chip companies, even as there were buying interest some stocks. This situation pushed the Index to an intraday low of 71,418.82bps from its highs of 71,859.23bps, before closing below its opening level at 71,457.92bps.
Market technicals were negative and mixed with a lower volume traded, when compared to the previous session, in the midst of breadth that favoured the bears on a selling sentiment as revealed by Investdata’s Sentiments Report showing 9% buy position and 91% sell volume. The total transaction volume index stood at 0.93 points, just as the impetus behind the day’s performance was strong, with Money Flow Index looking down to read 69.28pts, from the previous day’s 75.66pts, indicating that funds left the market.
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Index and Market Caps
At the end of Thursday trading, the NGXASI shed 350.72bps, closing at 71,457.92bps, from the 71,808.64bps opening level, representing a 0.49% decline. Market capitalization fell by N191.92bn, closing at N39.10tr, from the previous day’s N39.29tr, which also represented a 0.49% value loss.
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The downturn was driven by profit taking and selloffs in the shares of FBNH, GTCO, ETI, Zenith Bank, Accesscorp, UBA, Wapco, Champion and Jaiz Bank, among others. This impacted negatively on Year-To-Date gain, as it reduced to 39.43%, while Market Capitalization YTD gain stood at N10.98tr, representing a 40.27% rise above its opening level for the year.
Mixed Sector Indices
Sectoral performance indexes were mixed, as the NGX Banking and Industrial goods closed lower by 2.01% and 0.01% respectively, while the NGX Insurance led the advancers after gaining 1.83%, followed by Consumer goods with 0.03%, As NGX Energy finished flat.
Market breadth turned negative with losers outnumbering gainers in the ratio of 29:22, while transactions in volume and value terms were down, after players exchanged 432.91m shares worth N7.47bn, driven by trades in Universal Insurance, Veritas kipital, NB, Accesscorp and Zenith Bank
Multiverse and Mansard were the best performing stocks, gaining 9.91% and 9.76%, closing at N8.54per and N4.50 share respectively, on market sentiment and forces. On the flip side, FBNH and Guinea NSL Tech lost 9.86% and 9.64%, closing at N26.40 and N0.75 per share, purely on the back of profit taking and selloffs .
We expect the mixed performance and profit taking to continue on bargain hunting for dividend paying stocks ahead of year end in the midst of sector rotation and portfolio rebalancing on the strength of the better-than-expected corporate numbers released and high yields. However, we note that 2024 is beginning dividend season ahead.
Meanwhile, all eyes are on the fiscal and monetary authorities to give direction of the government reforms and policies so far.
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