Negative Returns In Fixed Income May Boost Earnings Season Vibes Amidst Profit Taking

Market Update for February 10

The positive outing on the Nigerian Exchange was extended on Thursday on investors’ buying interest in blue chips stocks across sectors improvements noted in corporate earnings and expected dividend declarations any moment from now, just as rates are not rising as fast as expected. The positive vibes among players for equities would increase, especially at this earnings season that numbers are looking up in the midst of positive economic data, despite the uptick in December inflation as the market looks forward to release of the January consumer price index next week.

Also, there was the impact of the further decline in long-tenored TB rates at the midweek’s Primary Market Auction on the equity market, as institutional players scampered in search of better returns on their investments. The decline in TB rates is expected to push excess liquidity from maturing bills to the equity space, ahead of the expected corporation actions, judging by the class of stocks driving the recovery. 

The positive sentiments in the face of market volatility was extended for two consecutive sessions in expectation of more corporate earnings as oil price continues to oscillates at the international market above $91 per barrel, and the nation production output rises to 1.398mbpd. These are likely to strength the economic fundamentals and boost economic, as well as market recovery. At this point, investors need to play the market more intelligently, by effectively combining technical and fundamental analyses, given the ongoing volatility that comes with the earnings reporting season. Here, let investors and traders allow their stop-loss and profit target to guide them, and must not be carried away with the galloping in the market as strength returns again.

Technically, the NGX’s index action extended its rebound to trade above the 47,000 mark, which confirms a change in momentum and signal. This shift remains skeptical, given the divergence between the index action and the MACD indicator in the midst of buying sentiments on a low traded volume. Investors need to watch this, even when more funds are expected to flow into the market, as institutional players likely increase their positions on the back of the previously noted decline in TB rates. Trade metrics for the session revealed increase position taking, as investors look forward to corporate actions hitting the market any moment from now, while some stocks like Fidelity Bank, Guinness, Total Energies Marketing as well as the NGX Group, among others hit their new 52-week highs on Thursday.

Candlestick formation at the close of trading session supports a change in trend, as players look to market forces, with the NGX index still trading above the shortest moving averages and others like 20, 50 and 200. Momentum indicators were positive and mixed with the ADX reading 62.94, while RSI closed above 50 at 74.80 and Money Flow Index slipped to 68.05 points on the daily time frame. The continuation of this trend depends largely on the interplay of market forces and flow of funds into the equity space, as direction of the fixed income market yields remains unclear with rates not rising as expected.

Thursday’s trading started slightly in the red but reversed up and oscillated during the session on buying interests in low, medium and high stocks, pushing the key performance NGX All-Share index to an intraday high of 47,286.24 basis points, from its lows of 47,154.05bps, before closing above its opening point at 47,286.34 bps.

Market technicals were positive and mixed, as volume traded was lower than in the previous day amidst the positive breadth and buying pressure as revealed by Investdata’s Sentiment Report showing 100% buy volume. The total transaction volume index stood at 0.59 points, just as momentum behind the day’s performance remained strong. Money Flow Index was slightly down as earlier noted, at 68.05 points, from the previous day’s 68.61 points, indicating a flat position as regard funds entering the market.  

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Index and Mkt Cap Movement 

The NGXASI at the end of Thursday’s trading gained 129.11 basis points at 47,286.344bps, after opening at 47,157.23bps, representing a 0.30% growth, just as market capitalization rose by N69.57bn, closing at N25.48tr, from the opening value of N25.41tr, also representing a 0.30% appreciation in  value.

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Meanwhile, Thursday’s upturn was driven by position-taking in Guinness Nigeria, Total Energies, NGX Group, Flour Mills, UBA, Ecobank Transnational Incorporated, Julius Berger, and Vitafoam, among others. This impacted positively on Year-To-Date gain, which increased to 10.70%. Market capitalization growth stood at N2.87tr YTD, representing a 15.07% rise over the opening level for the year.

Bullish Sector Indices 

Performance indexes across the sectors were bullish, led by the NGX Oil/Gas which gained 1.82%, followed by Consumer Goods, Banking and Insurance with 0.98%, 0.64% and 0.33% respectively.

Market breadth tuned positive as gainers outnumbered losers in the ratio of 30:9, while activities in volume and value terms were down, after stockbrokers crossed 198.12m shares worth N3.41bn, compared to previous day’s 297.25m units valued at N4.70bn. Volume was boosted by trades in Chams, Transcorp, Access Bank, UBA and Flour Mills.  

Guinness Nigeria and Total Energies were the best performing stocks for the day, gaining 10% and 9.92% respectively, while closing at N55.00 and N264.90per share on market sentiment and dividend expectation. On the flip side, Verita Kaptal Assurance and UBN lost 4.34% and 3.20% respectively, closing at N0.82 and N0.20 per share, on selloffs and profit taking.

Market Outlook

We expect the negative return in fixed income instruments to further boost the positive vibes during this earnings season as more audited financials with corporate actions start hitting the market in the midst of profit taking and portfolio rebalancing. This is will result in market players targeting fundamentally sound and dividend paying stocks in hope of dividend announcements, as oil trades at $91pb, just as inflation rate remains high at 15.63%, while the International Monetary Fund is calling for hike in interest rate and further devaluation of Naira.

Meanwhile, market players continue to digest the quarterly and unaudited 2021 full year results available in the market and what is happenings in fixed income market after the NGX index pulled back slightly to trade above its 50-Day Moving Average on a low sell volume in the face of assets rebalancing and the changing patterns in February as the investors look forward to more audited 2021 earnings reports.

The relatively low volume traded in the midst of volatility and recovery moves are creating new buy opportunities on the strength of corporate numbers and economic data. Also, candlestick formation and volume traded during the session shows that institutional players are not buying yet. It is equally noteworthy that during a ranging market many players sit on the fence waiting for a breakout, or down before jumping into any position. Even so, many stocks are trading within their buy ranges, a situation expected to attract more funds into the stock market, given the Dividend Yield capable of serving as a hedge against inflation.

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Ambrose Omordion

CRO|Investdata Consulting Ltd

Tel: 08028164085, 08179547605