Market Update for the Week Ended July 15 and Outlook for Jul 18-22
Nigeria’s equity market suffered a shock in the short trading week under review, when the National Bureau of Statistics (NBS), in its latest report for month-end June 30, 2022, confirmed a further surge in inflationary pressure which hit a five-year high at 18.6% Year-on-Year, up from 17.71% in May. Trading for the week was mixed while the NGX All-Share index closed higher on buying interests in telecom stocks, especially in Airtel Africa, and other high priced equities.
Now that the earnings reporting season has started with mixed corporate numbers, each trading day, going forward, could bring new surprises or disappointments for market players given that these earnings are consequential to the continued uptrend or pullbacks at the current level of the market and individual stocks position. The market recorded a buying momentum and profit-taking in the midst of price adjustment in the shares of BUA Cement, BUA Foods, Presco, Fidson Healthcare and Cornerstone Insurance for cash and scrip dividends recommended by their directors.
Also, a mixed half-year earnings release came from Unilever Nigeria was released to the market, as a significant increase in cost impacted its bottom lines in Q2, while the six-month results look seemingly good with top and bottom lines up by 35.2% and 169% respectively. This translated to Earnings Per Share of 33 kobo, up from 12 kobo in the corresponding period of 2021, on a positive operating cash flow that support earnings substitutability.
The market broke out the strong resistance level of 52,000 basis points mark, with inherit risks, just as potential rewards exist for discerning investors and traders that understand equity market dynamics and operations. Always allow your investment objective or goals, stop loss, entering and exit strategies guide your investment decisions. As factors that continue to drive volatility or market oscillation remained unchanged ranging from rising inflation, rates hike, improved fixed income market yields, oscillating oil prices, increased uncertainty as the general election year draw closer in the face of half-year earnings expectations ahead of next week’s Monetary Policy Committee meeting.
Consequently, cautious trading has dominated market activities in recent weeks and days, just as bargain hunters cash in on pullbacks and corrections, amid expectation of price spikes in some sectors and individual stocks that will wipe away out your losses and create the expected wealth.
Oil prices oscillated during the week to breakdown the $100 per barrel price on increasing fear of global recession before rebounding in the international market to trade at $101.8bp, after the labour report in US, slow economic growth in china and geopolitical crisis in Italy. Also noteworthy is the fact that peace talks and negotiations for Russia to allow Ukraine export greens at the seaport are making progress, ahead of G20 meeting were the war in Ukraine is a major talk at the meeting, even as these chronic high energy prices are killing the global economy, heightening inflationary pressures across the world on a weak economic outlook. This is influencing monetary policy options of central banks as they move to checkmate the impacts of the Russia-Ukraine conflict on the global economy to avoid economic recession. The nation’s soaring inflation is a potent threat to the fixed income market and investment yields, which should be an indication that there will be a reversal, with funds flowing back to equity space in no distant time, as institutional investors balance their portfolios.
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Movement Of NGXASI
Of the NGX’s three trading sessions for the week, two closed down, while the other recorded significant gain, as bargain hunters took advantage of the pullbacks and position in high priced stocks and sectorial leaders that pulled back ahead of more half-year earnings reports, amid interpretation and analysis of macroeconomic data released so far is ongoing.
Specifically, the week’s trading opened on a negative note, extending the previous day’s loss, pulling back by 0.43% at midweek after two days of Salah holiday on profit taking and price adjustment for dividend, a situation that extended to Thursday. Despite the fact that some market players took advantage of the pullback to position, the NGX index lost 0.10%, but reversed significantly up on Friday when it gained 1.72%. This brought the week’s cumulative gain to 1.27%, compared to the previous week’s 0.53% loss.
Cumulatively, the NGXASI gained 657.71basis points for the week, closing at 52,215.12bps, after touching an intra-week high of 52,542.93bps, from its lows of 51,304.74bps, which the opening figure for the week was 51,557.41bps. Market capitalisation also rose during the period by N355bn, closing at N28.16tr, from the previous week’s N27.80tr, which also represented a 1.28% appreciation in value, as admission of Dangote Cement bonds boosted the market cap.
The week’s top advancers’ table was dominated by low and medium cap companies that attracted buying sentiments as portfolio reshuffling continued in the midst of markdown for 2021 dividends and buying interest in Airtel, ahead of more half year earnings reports and MPC meeting outcome. Also noteworthy is the fact that investors are taking advantage of the pullbacks and expected earnings reports to accumulate positions.
Market breadth for the week was negative, as decliners outnumbered advancers in the ratio of 32:20 on buying sentiments and profit taking, as revealed by the investor sentiment report showing 74% ‘buy’ volume and 26% sell position. Money Flow Index was looking up at 69.55bps from the previous week’s 65.30 points, an indication that funds entered the market on a weekly chart to confirm the inflow of funds into some stocks despite the high yield in fixed income instrument and others, while on a daily time frame money flow index was down, revealing that funds left the market on Friday despite the up market.
The NGX index’s action on a weekly and daily time frame reversed up on improved buy momentum, as the market remains strong in the midst of increased volatility, profit-taking and price adjustment. We note also that the index is trading above ‘T’ line to signal the likelihood of continuation depending on the state of the expected earnings report. The major strong resistance level of 52,542.94 points on a low high traded volume to remain above the 20- and 50-day moving average to reveal strength. The candlestick formation, at the end of the week, showed buyers are in charge, as investors and analysts digest macrocosmic data, and other factors to reposition their portfolios for Q3 and beyond. The candlestick pattern indicates price retracement of the trend, depending on market forces in the new week.
Bearish Sectoral Indices
Sectorial performance indexes for the week were down, except for the NGX Oil/Gas that closed marginally higher by 0.02%, while NGX Industrial Goods led the decliners, after losing 3.38%, followed by Insurance, Banking, and Consumer Goods with 1.89%, 0.52% and 0.30% respectively.
Transactions in volume and value terms were down as market players traded 504.32m shares worth N7.52bn, compared to the previous week’s 822.40m units valued at N10.37bn, with volume driven by Financial Services, Service Industry and Energy sectors. Specifically, was driven by trades in GTCO, Caverton, UBA, Oando and Zenith Bank.
Academy Press and CWG were the best-performing stocks in the week, gaining 16.93% and 12.50% respectively, and closing at N2.21 and N0.90 per share on bonus of declaration and market forces respectively. On the flip side, Fidson Healthcare and Cornerstone lost 21.58% and 17.39% respectively, at N9.41 and N0.57 per share, purely on price markdown and profit taking.
Outlook for the week
We expect a mixed trend amidst market players digesting economic data and Q2 corporate earnings released so far ahead of next week’s MPC meeting, especially given Unilever Nigeria’s numbers that appeared mixed. Also, investors are repositioning for the half-year earnings reports, as market players continue to digest the Purchasing Managers’ Index. Also, investors and traders continue reacting to the earnings power, as the revaluation of quoted companies on their earnings performance and growth prospects continue. We note that income investors have sustained buying into interim dividend-paying stocks.
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