NGX: Cautious, As Traders React To CBN’s Hawkish Outlook, Realign Portfolios

Market Update for the Week Ended November 24 and Outlook for Nov 27-Dec 1

Nigeria’s equities’ market witnessed another positive outing on the strength of increased investor confidence and buying interest across all classes of stocks, especially the low priced equities that dominated the advancers’ table in the period under review. This confidence was not linked to the economy, as rising headwinds reflected in the weak growth recorded as shown in the 2023Q3 GDP figure of 2.54% released by the National Bureau of Statistics (NBS), against the 2.51% posted in Q2 2023 and that of 2.22% in the corresponding period of 2022. This fragile growth and unclear policy direction of the nation’s economic managers had dampened expectations from the ongoing reforms and others.
The Central Bank of Nigeria’s hawkish disposition for the next two quarters signal that a pre-recession and contraction economy is underway, as further hike in interest rate will push cost of funds even higher, thereby slowing down economy activities that support the needed growth or expansion. Already, cost of production remains high, hampering the supply side, made worse by the raging insecurity that has kept farmers from their farms, and imported inflation due to the the lingering forex scarcity, all of which have reflected in the latest October consumer price index that stood at 27.33%, despite the slight drop on MoM inflation. This could be attributed to mismatch of policies of economic managers, which we expect will be corrected on the coming months as the fiscal and monetary authorities collaborate, rather than engage in unhealthy competition. The statements and body languages of both sides point to the desire to attract more foreign exchange inflows.
As a market player, the Q3 GDP reports should be a guide on the issue of where to shop, as the year winds down, ahead of the 2024 earnings and dividend season, the prevailing weak growth and cautious optimism notwithstanding.
The services sector remained the major driver of the positive performance in GDP, recording 3.9% growth ahead of the 1.3% expansion seen in agriculture during the period, in the face of sustained insecurity in form of kidnapping and banditry, following which the current harvest season was cut short. The oil sector also recorded some improvement this period due to higher output that supported the 2.6% contribution to the GDP performance. Expectation in Q4, following the sustained increased oil production, the sector is likely to contribute more to the general GDP at the end of the year 2023, if production can cross 1.8m barrels per day. Also, the services sector is expected to continue its expansion, especially those in the financial services. The 2023 full year GDP projection of 2.8% is far below the 6% expectation of the presidency. The year 2024 is already taking shape with it’s fair share of challenges and opportunities. So, join us at Invest 2024 Traders and Investors Summit where we have an array of experts ready to help you navigate the uncertainties ahead successfully.
The material shifts in NGX index’s action making new all-time high, as a result of the ongoing portfolio rebalancing to hedge against inflation, on the strength of impressive corporate earnings seen so far, and ahead of year-end seasonality. These impacted stock prices across the large cap, low priced and blue chip companies, which also reflected on the volume of transaction and positive market breathe for the week. All attention has shifted to Q3 GDP figure of 2.54% and policy agenda of the apex bank made available at the weekend as investors interpret and digest all these in the face of market volatility.
The NGX remained above the T-line and 71,000 psychological line on a daily, weekly and monthly charts, as it ranges to consolidate amid buying interests in low priced stocks and blue-chip companies, which pushed the indicators marginally higher in the midst of above average traded volume. This confirm accumulation and distribution phase of the market. The seeming improvement in volume of transaction in the market is also an indication that smart money is gradually coming back to the market and mark-up in price is possible at any time and without notice. These, notwithstanding, we urge investors to wait for confirmation of the trend, with bargain hunters already taking advantage of the low valuation and in the face of buying interest and profit taking.
To navigate the rest of the year market volatility and its mixed outlook profitably using fundamental and technical analysis to run, join investdata 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 breakout of consolidation. As volume of transaction witnessed within the week remain above the average traded volume, it is time to go shopping for undervalued stocks, sectors and the next insider dealing opportunity.
Oil price during the week under review oscillated as it trades flat at $80.69 per barrel in the midst of OPEC meeting delay, ceasefire in middle east and mixed global macroeconomic data. Even as oil demand outlook remains mixed, despite the seeming cooling inflation. We note also the rising geopolitical tensions across the globe and supply disruptions longer, due to the Russia-Ukraine war that has lingered for more than a year, and is indeed escalating. The up and down movement of oil prices also continues to drive volatility across different investment windows.

Movement Of NGXASI
It was a mixed week of three up markets and two trading sessions down, as the benchmark NGX All-Share index closed higher, extending the bull transition for a fifth consecutive week on improved volume and buying momentum. Even as the healthcare sector outperformed the market and other major sectors.
The week’s trading started on a negative note, halting the previous gains with 0.15% loss. This was, however shortlived, when the bench index on Tuesday gained 0.08%. This trend was reversed at midweek after it lost 0.09% and rebounded for the rest of the week with the market index chalking
0.07% and 0.25% respectively on Thurs and Friday. This brought the week’s total gain to 0.17%, compared to the previous week’s 0.3 positive position. During the week, the share price of Thomas Wyatt was adjusted for 4 for 5 bonus share recommended by its directors.
In all these, the NGX All-Share index inched up 117.49 basis points, closing at 71,230.48bps, compared to the week’s 71,112.99bps opening level, after touching an intra-week high of 71,244.95bps and a low of 70,959.16bps. Market capitalisation also rose by N64.6bn to N39.17tr, representing a 0.17% value gain for the period.
Top advancers’ table for the week was dominated by low priced stocks, amid the buying sentiments in blue chip companies in the face of high volatility. Also notable is the fact that investors are taking advantage of the price oscillation and low valuation to buy into value and high dividend yield companies.
Market technicals for the period was positive as gainers outnumbered losers in the ratio of 59:21 on buying sentiments as revealed by investdata sentiment report showing 94% ‘buy’ volume and 6% sell position. Money Flow Index was looking up at 86.28bps from the previous week’s 80.18 points, an indication that funds entered the market on a weekly chart.

Technical View

The NGX index’s action broke out the strong resistance level of 71,136.14 on a ranging and consolidating market to test 71,244.95 on the weekly chart and above average traded volume signaling positioning of smart money in the market now, while position trading is ongoing by investors, as the market trades above the T line on a daily, weekly and monthly time frame to sustained its uptrend in the midst of positive sentiment and buying momentum. We note also that the index is trading above the 200-day moving average on the weekly time frame.

Bullish Sectoral Indices
The sectorial performance indexes were in green, save for NGX Consumer Goods that close lower by 0.53%, while the NGX Insurance led the advancers’ after gaining 4.07%, followed by Banking and Industrial goods with 1.94% and 0.04% respectively.
Transactions in volume and value were mixed, as players exchanged 2.43bn shares worth N22.67bn, compared to the previous week’s 2.03bn units valued at N27.69bn. Volume was driven by Financial Services, Services Industry and ICT industry. The was boosted specifically by trading in Universal Insurance, Veritas Kapital Assurance, Unity Bank, UBA and Transcorp.
Mecure Industries and Multiverse were the best performing stocks for the week, gaining 60.73% and 60.06% respectively, and closing at N9.21 and N5.81 per share on low float and market sentiments. On the flip side, Thomas Wyatt and Ellah Lakes lost 42.22%and 10.05% respectively, at N2.08 and N3.40 per share, purely on profit taking.

Outlook for the week
We expect mixed sentiment on cautious trading, due to hawkish outlook of the CBN, as portfolio rebalancing continues on high inflation and strong corporate earnings. Also, the market awaits the moves bt the government to resolve FX shortage in the exchange market, even as all eyes are on the apex bank and Ministers to rollout a national economic agenda.
However, retracement to the 68,559.46bps level and below is possible on profit taking as global and domestic events unfold.

Ambrose Omordion
CRO|Investdata Consulting Ltd
Tel: 08028164085, 08179547605