Mixed Trends Yet On Sector Rotation, As Investors Await Interim Dividend Stocks, July Inflation Data

Market Update for August 3

Trading activities on the Nigerian Exchange on Thursday sustained its rebound on increased buying sentiment and price appreciation by highly priced stocks, bluechips companies among others. The benchmark NGX All-Share index closed higher on a less than average traded volume and positive market breadth, thereby extending the recovery for a second consecutive session in the midst of continued portfolio rebalancing on the strength of recent corporate scorecards inflow. Meanwhile, revaluation of assets continues as investors await more pronouncements from the government and economic managers who are now undergoing confirmation by the Senate.
Also, all eyes are on macroeconomic reports, especially the July consumer price index, while we note the slide in Purchasing Managers’ Index for the month of July to 51.7 points from 53.2 points in June, indicating the weakening business conditions since March. This followed the decline in output over the period to reflect low purchasing power and rising inflation, driven by higher energy cost as result of subsidy removal, weaker naira value, owing to exchange rate unification amonh others thich impacted the modest improvement, even while managing to remain above the 50 points level that signifies expansion.
Thursday’s market performance confirmed our earlier report of bullish reversal pattern after forming a hammer candlestick at midweek, as sell volume suffered a decline to usher in stronger buying interests. This is happening amidst the volatility that comes with changing economic fundamentals, and the ongoing government reforms driving the 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 time, using multiple time frame analysis to catch short, medium and long term buy breakouts or sell breakdowns.
Looking at the trading patterns in blue-chip and low cap stocks that witnessed buying sentiment on the strength of value oriented sector rotation, and considering the mix earnings reports, there are some companies that posted surprising results, while others came well below market expectations. 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 the surging inflation.
The mixed earnings performance of companies that comprise the NGX-30, slowed down the market pushing it to the decline phase, offers investors and traders an insight into the general mood, just as the Price/Earnings ratios of most companies on the exchange reveal their underpriced state. There is also the higher upside potentials to attract liquidity and positive sentiment, if the economic managers give clear direction of their policies and implementation. This why there is the need for investors to navigate the market now that many equity prices look cheap on the strength of some impressive earnings and relatively low prices. The market cycle of a correction and market bottom in the face of technical pattern of oversold market or individual stocks signal that a reversal is underway, as bargain hunters take advantage of the pullbacks to reposition their portfolios.
The market extended its rebound sharply above the 65,000 mark to trade above the ‘T line’ and above the 50-day moving average, attracting bargain hunters as sector rotation and portfolio rebalancing increased amidst the inflow of scorecards of many companies to the market. 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. 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. At this time, 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 so far.
To navigate the rest of the quarter and year profitably using fundamental and technical analysis, join investdata’s 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, while others are fearful, as seen in the recent bull-run. Despite the mixed volume pattern witnessed in recent days, it is time to shop for undervalued stocks, sector rotation, go for defensive stocks at the next insider playing opportunity,
Oil price oscillation continued, rebounding again to trade at $85.20 per barrel in the midst of Saudi Arabia voluntary production cuts and expected impact of stimulus to boost china economic recovery that will support demand as the second largest economy. 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.
Meanwhile, Thursday’s trading opened slightly in the upside and it was sustained throughout the session on increased buying interests in blue chip companies and others. This pushed the Index to an intraday high of 65,323.20 basis points, from its lows of 64,267.36bps, before closing sharply above the opening level at 65,263.06bps.
Market technicals were positive and strong with a higher volume traded when compared to the previous session in the midst of breadth favoring the bulls on a buying sentiment as revealed by Investdata’s Sentiments Report showing 94% buy position and 6% sell volume. The total transaction volume index stood at 0.47 points, just as the impetus behind the day’s performance was relatively strong, with Money Flow Index reading 70.31pts, from the previous day’s 64.51pts, indicating that funds entered the market.
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Index and Market Caps
The NGXASI, at the close of trading gained 995.70 basis points, closing at 65,263.06bps, from its 64,267.36bps opening level, representing a 1.55% growth. Market capitalization also rose by N542bn to N35.52tr, from the previous day’s N34.97tr, which also represented a 1.55% appreciation in value.
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Thursday’s upturn was driven by position taking in shares of MTNN, UBA, NB, Dangote Sugar, Nascon, SterlingNG, Wapic and Cornerstone, among others. This impacted positively on Year-To-Date growth, which inched up to 27.34%, while Market Capitalization YTD gain slowed down to N6.28tr, representing a 27.31% rise above its opening level for the year.

Bullish Sector Indices
Sectoral performance indexes were bullish, save for the NGX Energy that closed lower by 0.57%, while the NGX Banking led the advancers after gaining 3.19%, followed by Insurance, Consumer goods and Industrial goods with 2.48%, 2.24% and 0.01% respectively.
Market breadth was positive, as gainers outnumbered losers in the ratio of 50:9, while transactions in volume and value were up after investors exchanged 445.28m shares worth N5.09bn, driven by trades in SterlingNG, FCMB, Accesscorp, Japaul Gold and Fidelity Bank.
PZ and SterlingNG were the best performing stocks, gaining 10% each, closing at N18.15 and N3.63 per share respectively, on market forces. On the flip side, Eterna and John Holt lost .9.83% and 9.82% respectively, closing at N23.40 and N1.47per share, purely on the back of profit taking

Market Outlook
We expect mixed sentiments on profit taking and continued value oriented sector rotation, as market players digest corporate action of interim dividend ahead of July inflation data and first tier banks earnings reports even as bargain hunters take advantage of the pullbacks to rebalance their portfolios 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.
Also, more Q2 earnings reports are expected to confirm the real state of the company performance and attract liquidity in the midst of markdown dates and the release of remaining audited accounts.
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