NGX Index’s 1.74% Pullback Offers Fresh Bargaining Opportunities, Amidst Fiscal Policy Hopes

Market Update for August 9

The Nigerian equity market pulled back at the midweek, continuing its bearish sentiment as selloffs hit highly priced stocks, weighing down the benchmark NGX All-Share index which closed lower on a low traded volume and negative market breadth. We note that the market has seen weakness in demand for equities in recent sessions as revealed by the continued low volume of transactions on a daily basis.
The bearish and top reversal pattern of the market continued for a second consecutive session on a declining volume that signaled low activities, which signals the wait-and-see attitude of market players after corporate earnings that hits the market were mixed in performance. These reflect the impact of ongoing government economic reforms, central bank of Nigeria exchange rate unification, among others. At this point the market is looking forward to favorable and positive news to trigger another round of buying interest, just as the rates of the Treasury Bills’ primary market offers fell to 5%, 5.9% and 9.8% respectively for the 91-day, 182-day and 364-days. As portfolio rebalancing and sector rotation continued on the strength of company earnings power.
The proposed merger of Dangote Sugar, Nascon and Dangote Rice Ltd, coupled with the planned exit of GSK are not clear to the investing public, as details of these corporate moves are not available to guide market player’s decision, after the manufacturing sector, especially Consumer Goods suffered setback as a result of FX losses, just as buying sentiment in banking stocks continued as investors await Tier 1 banks half year earnings reports, as ear
Stocks revaluation continues as investors await more pronouncements from the government and economic manager, as the Senate had concluded the confirmation of ministers of the federal’s executive council. Also, there is the ongoing volatility as a result of the changing economic fundamentals, and government reforms that are driving the reset in financial market and trading environment. It should be taken against the backdrop of August being a very dicey month when eyes should be kept on the chart, trend, sentiment and volume at all time, using multiple time frame analysis to catch short, medium and long term buy breakouts or sell breakdowns.
All these are already impacting prices of equities in the face of the recent rate hike that made fixed income instruments attractive for risk averse investors, just as institutional investors continue digesting these numbers in the midst of rising inflation and opportunities within the equity space to hedge against the surging inflation.
Also, the Price/Earnings ratios of the NGX and most individual companies reveal their relatively undervalued state and higher upside potentials to attract liquidity and positive sentiment. The economic managers are expected to give clear direction of government policies and implementation. This is why there is the need for investors to navigate the market now that many equity prices look relatively cheap on the strength of some impressive earnings. The market cycle of top and bottom in the face of technical pattern of over bought and sold market or individual stocks signal that a reversal is underway, as bargain hunters take advantage of the pullbacks to reposition their portfolios.
The market has broken-down the psychological line of 65,000 to trade below the ‘T line’ and above the 50-day moving average, attracting bargain hunters as buying interest in low cap stocks increased amidst digesting of scorecards of many companies on the exchange. It is therefore time to use technical tools, if you have been ignoring charts and fighting the trends, it is your chance to step up your game.
As the pullbacks had offered bargain opportunities, market players should target leaders in the various sectors with strong fundamentals, and positive technicals as the market reversal is underway, depending on first tier banks interim dividend payout to give insight of what will be expected at their final in 2023 financial year. it is pertinent to stress the fact that profit taking is part of market dynamics, which can occur at any time. This is despite the changing market structure as a result of the gradual return of foreign portfolio investors, even as we look forward to a mixed outing and intermittent profit taking, since environmental factors that pushed the market to this level remain unchanged, as market wait for favorable news and statements from the minsters.
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Oil price oscillation continued, as it rebounded to trade at $87.74 per barrel in the midst of demand doubts, as china’s oil imports fall. The Russia-Ukraine war remains a major concern, the prevailing high interest rate regime and slowing inflation. Also, supply tightened due to the Russia-Ukraine conflict that entered the second year. This up and down movement in oil price, has continued to drive volatility across markets.
Meanwhile, midweek’s trading opened on the downside and oscillated for the rest of the session on selloffs and profit taking across the sectors. This situation pushed the Index to an intraday low of 64,167.39 basis points, where it closed for the day, from its highs of 65,396.93bps.
Market technicals were negative and weak with a lower volume traded when compared to the previous session in the midst of breadth favoring the bears on a selling sentiment as revealed by Investdata’s Sentiments Report showing 0% buy position and 100% sell volume. The total transaction volume index stood at 0.26 points, just as the impetus behind the day’s performance was relatively strong, with Money Flow Index reading 58.26pts, from the previous day’s 66.75pts, indicating that funds left the market.
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Index and Market Caps
The key performance NGXASI, at the close of midweek trading shed 1,142.26 basis points, closing at 64,167.39bps, from its 65,309.65bps opening level, representing a 1.74% decline. Market capitalization also fell by N621.6bn to N34.92tr, from the previous day’s N35.54tr, which also represented a 1.74% depreciation in value.

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The downturn was driven by selloffs in shares of Dangote Cement, and its sister company- Dangote Sugar, as well as FBNH, in apparent negative reaction by investors to its plan to seek shareholders’ approval at its annual general meeting later this month for a fresh N150bn capital by way of a rights issue. Other losers during the day were GSK which has announced plans to exit the country after 51 years; as well as heavyweight- MTNN and UBA, among others. This impacted negatively on Year-To-Date growth, which dropped to 25.20%, while Market Capitalization YTD gain slowed down to N6.28tr, representing a 25.17% rise above its opening level for the year.

Bearish Sector Indices
Sectoral performance indexes were down, except for the NGX Insurance that closed 1.12% higher, while the NGX Industrial goods led the decliners after losing 4.85%, followed by Banking, Consumer goods and Energy with 0.36%, 0.27% and 0.19% respectively.
Market breadth turned negative as losers outnumbered gainers in the ratio of 27:22, while activities in volume and value were down after players had transacted 238.04m shares worth N2.62bn, driven by trades in SterlingNG, Fidelity Bank, Universal Insurance, UBA and Transcorp.
Guinea Insurance and Omatek were the best performing stocks, gaining 10% each, closing at N0.33 per share each, on market forces. On the flip side, Multiverse and Nascon lost 10% each, closing at N3.15 and N36.90per share, purely on the back of profit taking.

Market Outlook
We expect mixed sentiments as pullbacks provide bargain opportunities, in the midst expected positive news and digest corporate earnings ahead July inflation data and first tier banks earnings reports even as pullbacks create buying opportunity amidst economic reforms of the government, just as more policy pronouncements and economic managers hit the ground running, a situation expected to offer investment direction.
Also, more Q2 earnings reports are expected to confirm the real state of the company performance and attract liquidity in the midst of markdown dates and the release of remaining audited accounts.
We note that discerning investors have continued to target fundamentally sound companies and defensive stocks to protect their portfolios. Any pullback at this point may add more strength to upside potentials. As such, investors should take advantage of price rally to take profit, while also looking at the trends and events across the globe and domestically.

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