MPC Over, Bargain Hunters May Position On Pullbacks Investors Digest Economic Realities

Market Update for March 21

Trading activities on the Nigerian Exchange sustained its bearish trend as the new week started on a negative note, thereby extending the selling sentiments for a third consecutive session on a low traded volume and negative breadth. Also, on Monday, members of the Central Bank of Nigeria Monetary Policy Committee voted to retain rates at their second meeting of the year, so as not to deflate the marginal recovery noted in the economy.   

The wait-and-see attitude among market players continued, as the MPC meeting was ongoing, in the midst of investor concerns over the continued war in Ukraine and the expected impact of rates hike in matured economies on our domestic market and investments. But they forget that our market demography has changed in the last three years, because domestic institutional players and retail investors now dominate the Nigerian marketplace today, with improving corporate performance in terms of earnings and high payout that supports prices of equities on the exchange, attracting inflows.

The outcome of MPC and oscillating oil price, since fixed income market yields remain mixed in the face of the recent uptick in domestic inflation is a potent threat to the fixed income market and investment yields, which should be a pointer that funds may likely continue to flow into the equity space as institutions may likely increase their positions for the short time in companies with strong fundamentals that will support price and higher payout in this earnings season.

This situation has created ‘buy’ opportunities for smart and discerning traders. However, we warn that market consolidation and correction are not over yet, the oscillating trend signals that a major uptrend is underway, especially when it gets to the level where it is good enough for fixed income market players, among others, to jump into equity positions.  

Monday’s candlestick formation reveals a likely continuation of trends, or reversal, depending on market forces as trading opens Tuesday. The NGX index’s action pulled back again to remain in the distribution phase and trading below its seven-day moving average. The benchmark index remains strong and within the 47,000 basis points region which is the strong support level, as volatility persists and downtrend towards the next breakdown is sported around 47,195bps. Should the index break this point, the next visible support is 47,122.34 points.

Technically, the ongoing volatility is best described as sideways movement in a consolidation level, even as the session’s selloffs and buying interest could be linked to profit-taking across the major sectors that rallied recently. This is happening ahead of more 2021 full-year earnings season and Q1 numbers.  The possibility of the market reversing this trend is a function of impressive numbers and payout during this earnings season, following which we advise investors to play dividend stocks to reduce investment risks around the market.

Meanwhile, Monday trading opened on the downside and oscillated on selloffs and buying interests in medium and high cap stocks, a situation that pushed the NGX’s index to an intraday low of 47,196.55 basis points from its highs of 47,282.67bps, before closing slightly below its opening point at 47,251.93bps.

This market technicals were negative and mixed, with volume traded lower than the previous days in the midst of breadth that favours the bears on a mixed sentiment as revealed by Investdata’s Sentiments Report showing 64% ‘buy’ volume and 36% ‘sell’ position. Total transaction volume index stood at 0.58 points, just as the energy behind the day’s performance remained strong with Money Flow Index looking down at 57.87pts, from the previous day’s 62.29pts, indicating that funds left the market.

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Index and Market Caps

The composite index NGXASI, at the end of Monday, shed 30.74bps to close at 47,251.93bps, after opening at 47,282.67bps, representing a 0.07% drop. Similarly, market capitalization fell by N17bn, closing at N25.47tr, from the previous day’s N25.48tr, which also represented a 0.07% value loss.

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Monday’s bear-run was due to selloffs and profit-taking in stocks like UACN, Berger Paints, UBA, United Capital, GTCO, Wapco, FCMB, Eterna, and Custodian Investment, among others. This impacted mildly on Year-To-Date gain, which slipped to 10.62%. Market capitalization growth stood at N2.80tr YTD, representing a 14.71% rise over the opening level for the year.

Mixed Sector Indices

Performance indexes across sectors were mixed, as the NGX Consumer Goods and Energy closed 0.46%, and 0.01% higher respectively, while the NGX Banking led the decliners after losing 0.91%, followed by Insurance and Industrial goods with 0.71% and 0.01% respectively.

Market breadth was, negative, as losers outnumbered gainers in the ratio of 22:15; just as activities in volume and value terms were down, as investors exchanged 213.57m shares worth N2.68bn. Volume was driven by trades in Access Bank, Zenith Bank, UBA, GTCO, and Transcorp.

Guinness Nigeria and Royal Exchange Assurance were the best-performing stocks for the session, gaining 10% and 8.33%, closing at N71.00 and N1.30 per share respectively on impressive earnings and market forces. On the flip side, RT Biscoe and Berger Paints lost 10% and 9.64% respectively, closing at N0.72 and N7.50 per share, on selloffs and profit-taking.

Market Outlook

We expect the MPC outcome to determine direction, as bargain hunters take advantage of the pullbacks to position as investors digest the inflation data, ahead of the inflow of more release of 2021 audited financials with dividend announcements to support uptrend during this earnings season and oscillating oil prices. Just as the market continues to interpret economic data in relationship with 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, as 2021 Q4 GDP up at 3.98%, while the International Monetary Fund is calling for a hike in the interest rate and further devaluation of the Naira.

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