NGX Capitalisation Gains N1.74tr In October, But Volatility May Linger On Mixed Outlook, Year-end Rebalancing

Market Roundup for October
The third quarter earnings season month on the Nigerian Exchange closed on a positive note Tuesday, wiping off the lost suffered in September on the back of increased market volatility, better-than-expected quarterly corporate earnings reports and the subsisting negative real rate of return in the fixed income market due to the hyper-inflationary environment.
The benchmark NGX All-Share index gained a total of 2,854.05 basis points for the month, breaking out the consolidation range, while hitting an all-time high and heading towards the 70,000bps psychological line on buying interests in highly priced stocks and blue chip companies on low traded volume. Amidst all of these, funds continued to flow into the equity market. It is not clear if the resurgence has any link with the Supreme Court affirmation of the February 2023 Presidential election outcome, while the macroeconomic headwinds continue and the direction of yields stay unclear in the fixed income market.
The month of October had a mixed trend and momentum with the index’s action ranging to witness distribution, accumulation and markup phase on a positive market breadth. In the process, the index broke out its strong resistance level of 68,495.80 basis points recorded in September to all-time high of 69,236.19bps as 2008 peak turned support level, while the market index remained on the uptrend on daily, weekly and monthly chart to trade above the T-line.
There was also relative stability in oil price at it trades above $80 in October at the international markets in the midst of rising geopolitical tensions in the Middle East, Ukraine, Russia and others, in the face of weak global economic growth driven by rate hikes and government high cost of servicing debt which had affected economic activity and expansion. We note that Nigeria’s economic managers are struggling with policy direction, consistency, implementation and complementary plans to give a clear direction, especially in the FX market and others.
The positive close on bullish sentiments in the market was also despite the gloomy economy, rising insecurity challenges across the country and crisis in the foreign exchange market and oscillating external reserves. We do know that stock markets across the globe, as leading indicators of economic activities, are forward-looking. Consequently, it is not unexpected that the current share prices are reflecting the future earnings potentials of quoted companies, or their profitability, which is directly linked to economic activities and eventually the GDP.
However, the Nigerian equity market has since May rallied on the back of low stock valuations, liquidity and positive sentiments, while economic indices are pointing to economic deterioration, even when quoted company’s earnings are impressive, in the face of inconsistent policies of government.
The impact of low purchasing power of Nigerians was worsened by the Naira devaluation on daily basis in the exchange market, high electricity tariff and pump price of petrol, further pressuring the cost of goods and services when added to the high cost of other production variables that have almost crippled the manufacturing sector as reflected in the mixed earnings of companies in the real sector.
The positive responses to the strong numbers as at release dates by investors have pushed some growth and low priced equities to new 52-week highs. They include: UBA, Chams, NNFM, UACN and BUA Cement, thereby confirming the improving liquidity and confidence in the market. As noted earlier, the Q3 scorecards of various listed companies have given an insight into the real state of the economy in Q3 and what the Q3 GDP will look like when published by the NBS before the next MPC meeting in November.
The possibility of prices rallying further from here is high, amidst portfolio rebalancing on the strength of the Q3 numbers, just as investors would be assured of reward in the form of dividends when the full-year score-cards begin to flow into the market in the early days of 2024, with high possibility of dividend growth in some major sectors. It is expected that discerning investors and traders would take advantage of the relatively low stock prices, year-end seasonality and cycle to grow their income, ahead of major earnings season in the first quarter of 2024.
In the 21 trading sessions of October, the index recorded gains 12 times, and was down in nine, pushing year-to-date gain to 35.09%, even as we note the undervalued state of quoted companies. Their fundamentals, and the seemingly high dividend yields may attract more inflows to the Nigerian stock market. This is given that many equities are having high margin of safety, thereby offering higher upside potentials.
Meanwhile, the benchmark Index closed the month with a total gain of 2,854.05bps at 69,236.18bps, after touching a high of 69,264.10bps, from its lows of 66,210.50bps during the month, after opening at 66,382.14bps. This represented a 4.30% growth over the period on strong buying interests that impacted positively on the index and stock prices, pushing them further up to breakout various resistance levels of 67,000, 68,000 and 69,000 psychological lines.
Total ‘buy’ volume for the month was 99% and sell position of 1%, further extending the bull transition in the past quarter, while volume index for the period was 1.00 points. Market capitalization rose by a princely N1.74tr, closing at N38.04tr, from N36.3tr, representing a 4.79% appreciation in value. This was higher than the percentage growth in the index as a result of the listing of the right issues and admission of the shares of VFD Group which boosted market cap for the period. Traded volume for the period fell by 36.95% to 7.08bn shares, as against the 11.23bn units recorded in the preceding month. Market breadth for the month was positive with the advancers outnumbering decliners in the ratio of 56:40 to halt the previous month of down market.

Bullish Sectorial Performance
Performance indexes across the sectors were bullish. As shown in the chart below, the NGX Banking and Industrial Goods indexes boosted the market the most during the month, outperforming the general market. The NGX Main Board and NGX 30 index gained 8.92% and 4.29%, driven by price appreciations in large cap stocks, while the NGX Pension index improved by 4.21%, and NGX Premium index garnered 4.13%, followed by the NGX Energy, which chalked 2.38% to reflect the performance of Seplat on the exchange. The NGX Consumer Goods and Growth indices inched up 1.48% and 0.37% respectively. The overall market performance reveals investors’ positive sentiment and the clear decision among traders, as the market’s Price-to-Earnings ratio remains low and attractive. It is also worthy of note that only the NGX Insurance closed in red during the month.

Best & Worst Performing Stocks In October

The month’s best-performing stocks were low, medium and high cap stocks across the banking, consumer and ICT sectors, led by Thomas Watt, which gained 110.42% on market sentiment and reaction to bonus share announced recently, followed by Chams Holding Company’s 73.44%; and the 57% notch by UACN. NNFM climbed 30.82%, on impressive Q2 numbers; just as the share price of BUA Cement soared 25.15%; among others.

The worst performing stocks for the period was Sovereign Trust Insurance which lost 18.42%, amidst sell offs and expected Q3 numbers; Consolidated Hallmark Insurance shed 18.25% also due to profit taking; just as Prestige Assurance declined by 18%; ahead of Daar Communication ’s and Ellah Lakes’s 16% and 14.22% respectively, price decline during the month.

Technical View

The NGX’s index action for the month reveals an uptrend and a bullish chart pattern that is set to test a new level of 69,584.42 bps ahead of 70,000 as it trades above 50-Day Moving Average on a monthly chart with positive sentiment and low traded volume. The market is still trading within the bullish channel and above short and long moving average on a high buying interests, with the benchmark index entering the overbought region on a monthly, weekly and daily time frame to reflect increased inflow of funds that pushed stock prices up in October, which was also the earnings reporting season. With the impressive numbers released, trading patterns and momentum, going forward, are likely to change amidst portfolio rebalancing and repositioning ahead of year-end and seasonal cycles. Market technicals for the period were positive and this is likely to slow down in the new month depending on market forces.

Market Outlook
Volatility is expected to continue in November, even as the outlook remains mixed due to likely price corrections, or pullbacks for a few days due to profit taking and portfolio rebalancing ahead of year-end and 2023 corporate actions. The anticipated correction in the new month will, however, strengthen recovery and uptrend.
But investors at this point should not be greedy, but let their decisions be guided by preset investment goals and exit strategies, even as the healthy inflow of funds into the equity assets due to prevailing low yields in the fixed income market is likely to continue due rising inflationary pressure as the market look to the last MPC meeting for the year in the new month of November.
Again, the current undervalue state of the market offers investors opportunities to position for the short, medium and long-term, which is why investors should target fundamentally sound, and dividend-paying stocks for possible capital appreciation for the rest of the year.
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