Mixed Trends, Sentiments Linger On Portfolio Reshuffling, Sector Rotation

Market Update for August 16

Mixed trends and sessions continued on the Nigerian Exchange Tuesday with the benchmark NGX All-Share index closing marginally higher, thereby halting three consecutive sessions of losses on a very high traded volume in the midst of negative market breadth and low liquidity. This is just as the interpretation of recent macroeconomic data and corporate earnings by institutional investors and others continued.

Meanwhile, the latest inflation figure is likely to trigger flow of funds in the financial markets to preserve value, which will lead to continued assets reclassification and portfolio diversification to stay ahead of the 19.64% inflation rate reported in July by the National Bureau of Statistics.  This will further put the fixed income market under pressure due to the real rate of return that has already turned negative, as it is below the prevailing rate. Also, the relatively low demand at the auction window mirrors the tight system liquidity, even as the financial system has remained under pressure, forcing short-term rates to double-digit high in the money market. This has impacted demand across Treasury, Open market operations (OMO Bills) as well as Bond auctions, forcing spot rates upward

The prevailing mixed sentiments is due to selloffs, pullbacks and position taking by bargain hunters taking advantage of the prevailing relatively low prices of stocks and blue chip companies relative to value. 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 indicating the possibility of a higher payout as a hedge against the soaring inflation.

The volume pattern in recent days and weeks reveals accumulation in some sectors and individual stocks, apart from selloffs in some other stocks and sectors as money flow index which also suggest that funds are entering the market despite the mixed trend and breadth. The prevailing market condition is creating ‘buy’ opportunities for discerning investors and traders that understand stock market dynamics, especially as these companies’ earnings performance beat market expectations to indicate their inherent value and the cheap state of these stocks.

Despite the oscillating trend in the market, value investors are cashing in on the pullbacks opportunities at this point, while continuing to digest the recent impressive corporate earnings that seems to impact the share prices and the market regardless of the low liquidity and confidence. It is noteworthy also that these numbers are revealing value and intrinsic upside potentials of these stocks.

While we note the effects of the increasing global volatility as a result of rising rates, inflation, geopolitical tension and slowing consumer spending, there are however, pockets of strength in some sectors amidst the better-than-expected earnings releases that offer insights into strong group stocks with value in the industries and companies in the various sectors. There is the possibility of sectors beating the next quarterly estimates and predictions, attaining their pre-pandemic performances as they deal with capacity in the midst of soaring costs and insecurity.

The NGX index’s action as at the end of Tuesday’s session is still trading below the ‘T line’ and the 20-day moving average, to formed a double bottom that signal reversal as sector rotation and portfolio rebalancing increased amidst the recent scorecards of many companies on the exchange. 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 reversal is underway depending on the earnings power.

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Oil prices extended it pulled backs to trade at $92.85 per barrel in the international market, following the expected increase in supply of crude,  china weak economic data and fear of recession that linger on increasing geopolitical tension. These are happening amidst the low factory activities in China, Japan and others that now signal demand fear, made worse by the weakened GDP in the US that may push the world’s largest economy into a technical recession. Already, central banks across the globe have continued to hike rates in the fight against rising inflation, in the midst of a sluggish economic growth data from China and others. All these have continued to influence the monetary policy options of central banks as they move to checkmate the impacts of the Russia-Ukraine conflict on the global economy to avoid the looming economic recession.

Tuesday’s trading opened on the upside and was sustained throughout the session despite oscillating on selloffs and position taking in high cap stocks, a situation that pushed the NGX’s index to an intraday high of 49,737.86bps from its lows of 49,629.43ps, before closing slightly above its opening point at 49,709.46bps.

Market technicals were weak and mixed, with lower volume of shares traded than the previous day in the midst of negative breadth on a buying sentiment as revealed by Investdata’s Sentiments Report showing 74% buy volume and 26% sell position. The total transaction volume index stood at 1.16points, just as momentum behind the day’s performance was relatively strong as Money Flow Index is looking up at 53.53pts, from the previous day’s 45.90pts, indicating that funds entered the market.

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Index and Market Caps

The benchmark NGX All-Share Index at the end of Tuesday’s trading gained 80.03bps, closing at 49,709.46bps, after opening at 49,657.33bps, representing a 0.16% up, just as market capitalization rose by N28.10bn, closing at N26.81tr, from the previous day’s N26.78tr, which also represented a 0.16% appreciation in value.

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Meanwhile, Tuesday’s upturn was driven by demand for BUA Cement, Flour Mills, UBN, Zenith Bank, Learn Africa, Academy Press and LASACO, among others, which impacted mildly on Year-To-Date gain, as it increases to 16.37%.  Market capitalization gain YTD also rose to N3.34tr YTD, representing a 20.37% rise over the opening level for the year.

Mixed Sector Indices

The sectorial performance indexes were mixed, with the NGX Insurance, Energy and Consumer Goods closing 0.97%, 0.12% and 0.11% lower respectively, while NGX Industrial Goods led the advancers after gaining 0.96%, followed by Banking with 0.31%.

Market breadth remain negative as losers outnumbered gainer in the ratio of 22:10; just as activities in volume and value terms were down, after stockbrokers transacted 204.16m shares worth N1.64bn, with volume driven by trades in FBNH, Etranzact, UBA, Accesscorp and Eterna.

Cutix and Lasaco were the best-performing stocks, gaining 7.50% and 5.88% respectively, closing at N2.15 and N1.08per share respectively on earnings expectation and market forces. On the flip side, PZ and Courtville Business Solution lost 9.27% and 8.93% respectively, closing at N9.30 and N0.51 per share, purely on profit taking.

Market Outlook

We expect the mixed trends and sentiments to continue on portfolio reshuffling and sector rotation on bargain hunting as players interpret July inflation of 19.64% and impressive half-year results in expectation of more company’s scorecards, especially from the first-tier banks in the midst of sovereign risks, as all eyes are on interim dividends.

We note also the flow of funds into the fixed income segment on the rate hike by the CBN, as sector rotation persists. Analysts are also focused on the lookout for Q2 GDP and flow of funds 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





Tel: 08028164085, 08179547605