Mixed Trends Yet On Bargain Hunting, As Investors Digest Earnings Inflow, Fiscal Policy Devts

Market Update for the Week Ended August 4 and Outlook for Aug 7-11

The big trend on the Nigerian Exchange continued in the new month, as the benchmark NGX All-Share index extended its positive outing on a renewed buying interest and profit taking in the midst of changing economic fundamentals and trading environment.
This was just as market players continued to rebalance their portfolios on the strength of the recent corporate scorecards and macroeconomic reports, especially as all eyes are on the July consumer price index next week. We note the slide in the Purchasing Managers’ Index for the month of July to 51.7 points from 53.2 points in June, according to the report by Stanbic IBTC Group, indicating the weakest business conditions since March.
This followed the decline in production output over the period, reflecting the low purchasing power amidst the rising inflation, driven by the higher energy cost due to subsidy removal, weaker Naira value, owing to the exchange rate unification, among others which impacted the modest improvement, even while managing to remain above the 50 points level that signifies some level of expansion.
Consumer discretionary stocks represent those areas where consumers have and option as to whether to buy such products or otherwise, including autos. Consumer staples, on the other hand, are goods consumers will buy and use regardless of how bad the economy becomes. These include items for personal use, energy, food and others. When stocks in general are under pressure, staples tend to outperform, holding up better than most other stocks, especially companies into consumer discretionary products, because they do well when the general market and economy are booming. The unification of exchange rate in the FX market has negatively affected this sector performance as many companies in the consumer goods industry posted negative earnings, raising concerns among market players.
The latest mixed corporate earnings in the market are yet to impact much on the prices of most equities, due to the seeming profit taking, buying interests, and portfolio repositioning, due to the high interest rates, just as institutional investors digest these numbers and are likely to start accumulating positions in those companies with scorecards that beat expectations, amid positive fundamental news, or policies of government to support the sector, or the company performance going into the future. Noteworthy also is the fact that some corporate results came below expectation, especially some blue chip companies and medium cap stocks that posted mixed and even disappointing numbers. As such, let your stop-loss and exit strategies guide you at a time like this.
In all these, there is position taking in the equity market as revealed by sentiment of report for the week that indicated a 92% buying position and money inflow reading 83.17, hence the need for investors to navigate the market now that many stocks are fairly priced in the face of mixed earnings. The market cycle of above average traded volume and market uptrend in the midst of technical pattern of overbought market and strong momentum that signal that an uptrend is underway, while bargain hunters take advantage of pullbacks and relatively low prices to reposition their portfolios.
The distribution phase of the market on a weekly chart with decline in traded volume, even when the NGX index is resisting further decline as revealed by the candlestick formation at the end of the period, which call for caution trading. The market remains above the 65,000 basis points’ mark, to trade above the ‘T-line’ and 50-day moving average on the weekly and daily time frame to attract bargain hunters and institutional investors as sector rotation and portfolio rebalancing increased amidst review of corporate earnings released so far, as all eyes are on first tier banks results. Also noteworthy is the fact that the NGX’s Price-to-Earnings Ratio remains relatively low and attractive for investments, following which we foresee a mixed trend in Q3 and beyond on profit booking and buying interests. Also, we expect that S&P will upgrade the nation’s credit rating, just as there is ongoing merger talks among Nascon Allied, Dangote Sugar and Dangote Rice, even as there are expectations that portfolios would be assigned to ministerial norminees, among other factors ecpected to shape the market in this new week and beyond.
To navigate the Q3 market volatility and the rest of the year’s mixed outlook profitably using fundamental and technical analyses to run, join investdata live sessions at noon every trading day “and also get investdata technical toolbox to play the current state of the market do suggest that discerning investors are gradually becoming greedy. As volume of transaction witnessed within the week remain above the average traded volume, it is time to go shopping for undervalued stocks, sectors and the next insider playing opportunity.
Oil price continued its bullish run for the sixth consecutive week, trading at $86.16 per barrel in the midst of falling inventories and tighter supply. As China move to stimulate its economy and boost recovery that had been weak since the lifting Covid 19 restriction. We note the rising geopolitical tensions and supply disruptions due to the Russia-Ukraine war that has lingered for more than a year now, and is indeed escalating. The up and down movement of oil prices also continues to drive volatility across different investment windows.

Movement Of NGXASI
Of the NGX’s five trading sessions in the week under review, two were up, while three recorded losses, as bargain hunters took advantage of the pullbacks to position in high priced stocks and sectorial leaders that pulled back to reposition their portfolios, amid interpretation earnings and analysis of macroeconomic data released so far.
Specifically, the week’s trading opened on a negative note, extending losses of the previous session, after pulling back by 1.10%, which was sustained on Tuesday when it slipped lower by 0.23%. The market rebounded marginally at midweek by 0.12% and this was extended on Thursday with sharp gain of 1.55% on buying interests in MTNN, among others, before pulling back on Friday, losing 0.10%. This brought the week’s cumulative gain to 0.22%, compared to the previous week’s 0.02% notch.

Cumulatively, the NGX All-Share index gained 141.69bps, closing at 65,198.08bps from the previous week’s 65,056.39bps, after touching an intra-week high of 65,323.20bps from its lows of 63,773.76bps. Similarly, market capitalisation rose by N77bn, also representing a 0.22% value gain, closing at N35.48tr from N35.4tr.
The week’s top advancers’ table was dominated by low and medium cap stocks, amidst profit taking, buying position and strong momentum, as volatility and portfolio reshuffling continued. Also notable was the buying sentiment, while investors assessed impacts of the changing economic fundamentals. So far, market players are revealing the upside potentials and inherent value in some companies with strong earnings power and volume patterns ahead of more half-year earnings reports with interim dividends. So, buying into value, strong earnings and high dividend payout companies remains the way to go, as price correction impacts positively on dividend yields.
Market breadth for the week was negative as losers outpaced gainers in the ratio of 52:42 on buying sentiments as revealed by investdata sentiment report showing 92% ‘buy’ volume and 8% sell position. Money Flow Index is looking down to read 83.17bps, from the previous week’s 89.08points, an indication that funds left the market on a weekly chart. The candlestick formation of the market’s index on a weekly time frame revealed a bullish pattern due to buying interests in blue chips mostly, and selloffs in highly priced stocks, amidst the hike in rates and yields in the fixed income market looking up. There are also Impacts of the ongoing economic reform by the new government.

NGXASI Weekly Chart

The NGX index action on a weekly and daily time frame retraced up on improved buy momentum and sentiments, as the market remains strong in the midst of increased volatility and profit taking. We note also that the index is trading below the ‘T’ line but signals the likelihood of a breakout, depending on expected inflow of liquidity and reactions to earnings reports. The major strong resistance level of 66,000 points, as the NGX trades above the 20 and 50-day moving averages. The candlestick formation, at the end of the week, showed buyers are in control, as investors and analysts digest macrocosmic data, financials and other factors to reposition their portfolios for Q3 and beyond. The candlestick pattern indicates continuation of the trend, depending on market forces in the new week.

Mixed Sectoral Indices
Sectoral performance indexes witnessed a mixed outing, as the NGX Banking and Oil/Gas closed lower by 2.1.4% and 0.7% respectively, while the NGX Insurance led the advancers after gaining 5.9%, followed by Consumer and Industrial goods with 2.3% and 0.2% respectively.
Transactions in volume and value were down as market players traded 2.58bn shares worth N29.62bn, compared to the previous week’s 2.85bn units valued at N37.65bn. Volume was nonetheless driven by financial services, Conglomerates and Energy stocks. Specifically, volume was boosted by trading in shares of Aiico Insurance, FCMB, Transcorp, UBA and Accesscorp.
Sunu Assurance and Chellaram were the best-performing stocks, gaining 55% and 45.5% respectively, closing at N0.93 and N3.39per share on impressive Q2 numbers and market forces. On the flip side, the share prices of John Holt and Omatek lost 33.18% and 30.61% respectively at N1.47 and N0.34 per share, on back of profit taking and selloffs,

Outlook for the week
We expect the mixed sentiments to persist on bargain hunting and profit taking, as market players digest corporate earnings released so far to rebalance their portfolio in the midst of more policy pronouncement and the assigning of Portfolios to the screened ministerial nominees by the president. These are coming in the midst of corporate actions, price adjustments and payment dates. However, retracement to the 62,578.12bps level and below is possible on profit-taking as global and domestic events unfold.

Ambrose Omordion
CRO|Investdata Consulting Ltd
Tel: 08028164085, 08179547605