Mixed Trend Still, On March Year-end Reports, As Rates Hike Push Funds Into Fixed-Income Assets

Market Update for June 1

The month of June started on a bearish note after profit-taking continued at the midweek, but at a moderate momentum on the Nigerian Exchange, with the benchmark NGX All-Share Index closing marginally lower, extending to three consecutive sessions of bear transition. It is yet unclear whether this is related to raging concerns over the 150 points rate hike by the Central Bank of Nigeria (CBN), and fear of an impending global economic recession on the back of the Russia-Ukraine war that has disrupted commodity supply chains since the second half of February and continues to fuel the ongoing inflationary pressure across the globe today.

The indexes and price correction witnessed since the beginning of the week’s trading are attributed to price adjustments in blue-chip and highly-priced stocks for the 2021 full-year dividend as recommended by their boards. Also, profit booking continues across the major sectors, just as funds continue to flow into the fixed income space appealing to some investors, especially those who are risk-averse.

In any market condition, all you need is price because assets price trends in volatility, whether in low or high volatility, so when investing in the stock market, always approach it as a market of stocks, regardless of the environment or situation because there are always stocks showing leadership and trending higher. Here, you may have to look harder to identify them, and depending on current market conditions, there are always stocks that are going up. The same can be said for weak stocks, regardless of the environment or situation, there are always stocks that are traveling south too. So look for stocks with best momentum and relative strength characteristics.

In the face of pullbacks, following and trading prices simply mean that the market tells you what to do and not the other way round because price action is always right as it does not care what a trader feels. Bull markets can go on for days, weeks, months, and years, but bear markets happen unexpectedly and can quickly destroy a trader’s profits, or even trading account. If stop loss is not in use.

Bear markets move with greater velocity than bull markets and are accompanied by high volatility, due to investors’ emotions. With the rate hike triggering the flow of funds from equities to the fixed income market, the spiraling inflation may support the entry of funds into commodity-backed securities or stocks to hedge against inflation. Also, investors and analysts are keeping a close watch on developments around the political space, ahead of next year’s general elections, which have started with the ongoing primaries of the various political parties. Already, with the presidential candidate of the main opposition Peoples Democratic Party (PDP) selected, investors and, indeed, Nigerians are waiting for that of the ruling All Progressives Congress (APC). This will reduce the quantum of political uncertainty around the 2023 general elections and what is likely to play out for the economy in the next political dispensation, given the known dispositions of the frontline candidates. These are, of course, in the absence of an upset from a third force, all of which will be priced into the market, in the coming weeks and months.

Oil prices pulled back powerfully in the international market to trade at $114.2 per barrel, after touching a two-month high of $123.8 on the plan of creating a cartel of oil consumers to keep prices down in the midst of china lifting the lockdown imposed due to the impact of the ravaging Coronavirus pandemic and the recent cut in interest rate to support its economy. And also, the EU plans to enforce the embargo on the importation of Russian oil. As these chronic high energy prices are killing the global economy, heightening inflationary pressures across the globe on a weak economic outlook, thereby influencing monetary policies of central banks as they move to checkmate the impacts of the Russia-Ukraine conflict on the global economy to avoid economic recession. The nation’s soaring inflation is a potent threat to the fixed income market and investment yields, which should be an indication that there will be a reversal of funds flowing back to equity space in no distance time as institutional investors balance their portfolios.

However, market corrections are the result of profit-taking and selloffs, hence the need to rely on your stop-loss effectively at this point of the distribution phase signals continuation, or reversal. This is especially when high-cap stocks that control 70% of market capitalisation move up or down ahead of reactions to their earnings and expected dividend payments in May and June 2022.

The NGX index’s action has technically entered the decline phase, trading below the ‘T-Line’ and above the 20-day moving average, but the market remains strong, despite the profit-taking that started the week. The strong support level is 51,151.32bps region, while volatility persists and downtrends towards the next breakdown sported around 52,587.01bps. Should the index break this point, the next visible support is 51,940.57bps.

The possibility of the trend being sustained is high and a function of market forces and improved economic conditions during this month and beyond, following which we advise investors to play defensive stocks and reduce investment risks around the market.

Midweek’s trading started slightly on the upside before pulling back to oscillates for the rest of the trading session, on profit-taking across some major sectors and high priced stocks, a situation that pushed the NGX’s index to an intraday low of 52,952.24bps from its highs of 53,045.12ps before closing below its opening points at 52,974.14 points.

Market technicals were negative and mixed, as volume traded was lower than the previous day in the midst of breadth favoring the bears on a selling sentiment as revealed by Investdata’s Sentiments Report showing a 76% sell position and 24% buy volume. The total transaction volume index stood at 0.75 points, just as momentum behind the day’s performance was weak with Money Flow Index looking down at 33.02pts, from the previous day’s 40.16pts, indicating that funds left the market.

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Index and Market Caps

The key performance NGXASI, at the end of the day’s trading, shed 10.13bps, closing at 52,974.15bps, after opening at 52,990.28bps, representing a 0.03% drop. Similarly, market capitalization fell by N9bn, closing at N28.56tr, from the previous day’s N28.57tr, which also represented a 0.03% value loss.

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Wednesday’s downturn was driven by profit-taking and selloffs in Okomu Oil, Unilever, Flourmill, FBNH, Conoil, Accesscorp, Honeywell, Oando and AIICO, among others. This impacted mildly on Year-To-Date gain, which fell to 24.01. Market capitalization growth stood at N6.2tr YTD, representing a 28.08% rise over the opening level for the year.

Bearish Sector Indices

Performance indexes across sectors were down, except for the NGX Consumer Goods that closed   0.09% higher, while NGX Industrial goods led decliners after losing 3.44%, followed by Insurance, Banking, and Energy with 0.49%, 0.30%, and 0.20% respectively.

Market breadth was negative, as decliners outnumbered advancers in the ratio of 20:14; just as transactions in volume and value terms were down, with stockbrokers crossing 295.35m shares worth N3.59bn. Volume was driven by trades in Transcorp, GTCO, Conoil, Sterling Bank, and Royal Exchange Assurance

Eterna and FTN Cocoa were the best-performing stocks of the session, gaining 9.90% and 9.38%, closing at N7.44 and N0.35 per share respectively on improving earnings and market forces respectively. On the flip side, Okomu Oil and NCR lost 10% and 9.77% respectively, closing at N193.50 and N3.60 per share, on profit-taking and selloffs.

Market Outlook

We expect a mixed trend in reaction to March year-end earnings report, as funds flow to the fixed income market on the rate hike by CBN, just as portfolio rotations persist as players digest the macro-economic data and Q1 corporate earnings release, ahead of May consumer price index and purchasing manager index reports to support recovery in the new month amid oil prices oscillation. Also, the market continues to interpret the rising inflation in relation to the crude oil price and other factors, in the midst of profit-taking and portfolio rebalancing. This will result in market players targeting fundamentally sound and dividend-paying stocks in the hope of dividend announcements.

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Ambrose Omordion

CRO|Investdata Consulting Ltd

info@investdataonline.com

info@investdata.com.ng

ambrose.o@investdataonline.com

ambroseconsultants@yahoo.com

Tel: 08028164085, 08179547605

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