Sell-side pressure continued on the Nigerian Exchange at the midweek, thereby extending the bearish mood of the market for a second successive trading session, after Monday’s public holiday to celebrate the nation’s Democracy Day, as profit booking persisted among market players. The benchmark NGX All-Share index closed lower, ushering in the decline phase, on a low traded volume and negative market breadth, even as sectorial performance for the session witnessed mixed sentiments and momentum following the pullback by financial and consumer goods stocks.
The continued price correction and reactions to the recent rate hike by the Central Bank of Nigeria (CBN) at its Monetary Policy Committee meeting in May, amid concerns about the rising inflation across the globe and impending global economic recession. Also, all eyes are on the world and even domestic economic data, while selling sentiments continue across some sectors, as funds flow into fixed income instruments from risk-averse investors due to the increase in interest rate that followed May inflation rate which soared to 17.71% the highest in 11 months since June 2021, according to National Bureau of Statistics (NBS) reports released during the trading session.
As the release of May consumer price index report of 17.71% coincided with the market pulling back to enter its decline phase, and the NGX index action trading below the 53,000 basis points mark at 52,775.40bps, it calls for a change in trading strategies, ahead of the quarter-end window dressing and half year earnings reporting season. This hot economic and market news should guide investors and traders when picking stocks in this season and beyond, especially amidst this pre-election year volatility and uncertainties, even as fixed income market players are further threatened by the inflation rate that has been on the rise since November 2021, from 15.4% to 17.71%, just a few points shy of the 17.75% recorded in June 2021. This is driven by the sustained rise in food prices, given the nation’s dependence on imported foods, especially grains. Also, there is the impact of rising insecurity, diesel prices, and the shortage of US$, among others, all of which have kept inflation at double digits since 2016.
To avoid the old mistake and costly losses of the past in this changing market momentum, we invite you to attend the Investdata Q3 Master Class, ahead of the half-year earnings reporting season and general elections. We note that the major political parties just concluded their primaries to select presidential candidates ahead of the February 2023 general election. Current developments in the market do suggest that discerning investors are gradually becoming greedy, while others are fearful, while actively buying more, as seen in the recent market corrections. Despite the selling sentiment witnessed at the close of trading, it is time to go shopping for undervalued stocks, sectors and the next insider playing opportunity.
Oil prices slowdown in the international market, while oscillating and trading at $119 per barrel, after the historic interest rate hike by the Fed 75 points, which is the largest increase since 1994. This was after crude prices have touched its two-month high of $124.60 on the reopening of China provinces locked down due to Covid 19, amidst Saudi Arabia’s July futures price rise. Also, the EU plans to enforce the embargo on the importation of Russian oil, even as these chronic high energy prices are killing the global economy, heightening inflationary pressures across the globe on a weak economic outlook, thereby influencing monetary policies 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 of funds flowing back to equity space in no distance time as institutional investors balance their portfolios.
Technically, the NGX index action has pulled back to confirm decline phase of the market, trading below the ‘T-Line’ and slightly above 20-day moving average, as the market remains relatively strong, despite the negative outing it started the week. The strong support level has been within the 52,000 basis points region, while volatility persists and corrects towards the next breakdown is sported around 52,497.71bps. Should the index break this point, the next visible support is 52,277.43bps.
The possibility of the trend being sustained is high and a function of market forces and improved economic conditions during this month and beyond, following which we advise investors to play defensive stocks and reduce investment risks around the market. This, they can do by effectively using your stop-loss and trading your plans always by allowing your entry and exit strategies to guide you.
Midweek’s trading started slightly on the downside and was sustained throughout the session, on profit taking and selloffs across the financial, telecoms and consumer goods stocks, a situation that pushed the NGX’s index to an intraday low of 52,773.20bps from its highs of 53,113.64ps before closing below its opening points at 52,775.40bps.
Market technicals were negative and mixed, as volume traded was lower than the previous day in the midst of negative breadth and selling pressure as revealed by Investdata’s Sentiments Report showing 99% sell position and 1% buy volume. The total transaction volume index stood at 0.50 points, just as momentum behind the day’s performance was relatively weak as Money Flow Index is looking down at 46.39pts, from the previous day’s 44.39pts, indicating that funds entered the market despite closing down.
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Index and Market Caps
At the end of Wednesday trading, the composite index NGXASI shed 338.24bps, closing at 52,775.40bps, after opening at 53,114.65bps, representing a 0.64% decline. Similarly, market capitalization fell by N182.91bn, closing at N28.45tr, from the previous day’s N28.66tr, which also represented a 0.64% depreciation in value.
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Meanwhile, the session’s downturn was driven by selloffs and profit-taking in MTNN, FBNH, Zenith Bank, NGX Group, International Breweries, Dangote Sugar, Champion, AIICO, UBN and UBA, among others. This impacted negatively on Year-To-Date gain, dragging it to 23.55%, while market capitalization growth stood at N6.34tr YTD, representing a 27.73% rise over the opening level for the year.
Mixed Sector Indices
Performance indexes across sectors were mixed, as the NGX Banking, Insurance and Consumer goods indexes closed 2.01%, 0.76%, and 0.35% lower respectively, while NGX Energy led the advancers after gaining 0.07% followed by Industrial goods with 0.05%.
Market breadth was negative, as losers outnumbered gainers in the ratio of 26:11; just as activities in volume and value terms were down, after stockbrokers traded 188.09m shares worth N2.36bn, with volume driven by trades in UBA, GTCO, FBNH, Sterling Bank and Zenith Bank.
Tripple Gee and Learn Africa were the best-performing stocks after gaining 9.2% and 5.5%, closing at N0.95 and N2.50 per share respectively on market forces and dividend expectation. On the flip side, Meyer and Linkage Assurance lost 10% and 8.9% respectively, closing at N2.79 and N0.51 per share, on selloffs.
Market Outlook
We expect a mixed trading as May inflation rate beat expectation in the midst of Feds hiking interest rate by 75 basis points the highest since 1994, ahead of quarter end window dressing and interim dividend season in Nigeria, while some March year-end audited accounts companies hit the market any moment from now. We note also the flow of funds into the fixed income segment on the rate hike by the CBN, as sector rotation persists and players digest the macro-economic data and earnings forecast released so far. Analysts are also expecting the inflation report to support recovery in the new July amid oil prices oscillation. Also, the market continues to interpret the rising inflation in relation to the 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.
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