Mixed Trends Ahead, As Investors Review July Inflation Data, Await Banks’ Earnings

Market Update for August 15

Prices of Nigerian stocks slipped further on Tuesday amidst skyrocketing inflation in the country that hit 19-year high at 24.08% from the 22.79% recorded in June. The emerging situation is made worse by the dwindling external reserve and falling value of the nation naira as a result of high volatility in the exchange market in the aftermath of the rates unification without any proper preparation by the central bank. This made a mess of the otherwise move to reform the the economy and monetary policy stance.
The market witnessed a mixed session of buying interest and selloffs, forcing the key performance NGX All-Share index to close lower for the second successive session of back to back losses on a less than average traded volume, negative market breadth and mixed sentiments as companies continue to release their half-year corporate earnings with mixed performance and rising economic concerns due to the ongoing reforms in the system.
As the rising inflationary pressure takes a toll on the fixed income market instruments, the August savings bonds were undersubscribed as a result of the hyperinflationary environment that continues to deepen the negative returns in the fixed income space. These situations are to further guide the ongoing portfolio rebalancing ahead of first-tier banks’ half year earnings reports, which we expect, would be net gainers from foreign exchange revaluation gains and corporate actions of PZ, Flourmill and Honeywell for their financial year ended May and March 2023 respectively.
The current market position and the state of the economy call for cautious trading, while discerning investors are taking advantage of the market consolidation, after forming a descending triangle and flag that supports continuation of trend or reversal. It is the time to buy into value stocks with strong fundamentals, as the market looks forward to favorable and positive news that will trigger yet another round of buying interest. Also noteworthy is the rates mixed outlook in the fixed income market, amidst portfolio repositioning and sector rotation on the strength of company earnings’ power.
The ongoing volatility is due to the changing economic fundamentals, and government reforms that are driving the reset in 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.
Also, the Price/Earnings ratios of the NGX and most individual companies reveal their relatively undervalued state and higher upside potentials to attract liquidity and positive sentiment. The economic managers are expected to give clear directions of government policies and their implementation. This is why there is need for investors to navigate the market now that many equity prices look relatively cheap on the strength of some impressive earnings. The market cycle of top and bottom in the face of technical pattern of over bought and sold market or individual stocks signal that a reversal is underway, as bargain hunters take advantage of the pullbacks to reposition their portfolios.
The NGX index action pulled back to trade flat on ‘T line’ and above the 50-day moving average, attracting bargain hunters to position in fundamentally sound medium and low cap stocks amidst digesting of scorecards of many companies on the exchange. 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. This is despite the changing market structure as a result of the gradual return of foreign portfolio investors, even as we look forward to a mixed outing and intermittent profit taking, since environmental factors that pushed the market to this level remain unchanged, as market wait for favorable news and statements from the minsters.
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Oil price oscillation continued, as it pulled back to trade at $84.64 per barrel in the midst of fear weak demand on mixed global macroeconomic reports and gloomy economic condition in China. 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.
Tuesday’s trading started slightly on the downside and oscillated for the rest of the session, sustaining the trend on profit taking and positioning in some stocks. This situation pushed the Index to an intraday low of 64,860.22 basis points from its highs of 65,028.46bps, before closing marginally below the opening figure at 64,928.98bps.
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 mixed sentiment as revealed by Investdata’s Sentiments Report showing 41% buy position and 59% sell volume. The total transaction volume index stood at 0.34 points, just as the energy behind the day’s performance was relatively weak, with Money Flow Index reading 39.83pts, from the previous day’s 46.72pts, indicating that funds left the market.
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Index and Market Caps
The benchmark NGXASI, at the close of Tuesday’s trading lost 107.39 basis points, closing at 64,928.98bps, from its 65,036.37bps opening level, representing a 0.17% decline. Market capitalization also fell by N58.48bn to N35.36tr, from the previous day’s N35.42tr, which also represented a 0.17% value loss.
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Meanwhile, Tuesday’s down was driven by selloffs in the shares of Unilever, Dangote Sugar, UBA, Wapco, Eterna, FBNH, BUA Cement, Accesscorp and Cutix, among others. This impacted negaively on Year-To-Date growth, which reduced to 26.73%, while Market Capitalization YTD gain went up to N6.03tr, representing a 26.85% rise above its opening level for the year.

Bearish Sector Indices
Sectoral performance indexes were in red, except for the NGX Insurance that closed 1.32% higher, while the NGX Consumer goods led the decliners after losing 0.68%, followed by Energy, Banking and Industrial goods with 0.40%, 0.08% and 0.06% respectively.
Market breadth was negative as losers outpaced gainers in the ratio of 31:18, while activities in volume and value were up after investors exchanged 280.47m shares worth N4.65bn, driven by trades in Transcorp, UBA, Accesscorp, SterlingNG, and Japaul Gold.
Tantalizer and Ikeja Hotel were the best performing stocks, gaining 10% and 9.82% respectively, closing at N0.44 and N3.13per share each, on market forces. On the flip side, Eterna and Sunu Assurance lost 9.9% and 9.6%, closing at N16 and N0.94per share, purely on the back of profit taking.

Market Outlook
We expect mixed performance to continue as market players digest the latest CPI data in the midst of expected first tier banks earnings reports and bargain hunting, while portfolio realignment 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