Market Update for October 6

The bear dominance on the Nigerian Exchange continued sharply Thursday as the benchmark NGX All-Share index suffered huge loss on selloffs that hit the telecommunication, and agro business stocks, among others, a situation that dragged the market lower. It also broke down the strong support level and psychological line of 48,000 basis points, making lower lows on a less than average traded volume. Market breadth was negative in the midst of low liquidity and Q3 corporate earnings expectations, thereby extending its bear-run for the third successive session in the midst of sell sentiments and weak momentum.

The lower bids and offers all these time in the shares of Airtel, Seplat, Okomu and Presco were finally executed as volume required to change price was available in the market. This profit taking due to portfolio reshuffling and sector rotation provided opportunities for discerning investors to position in value stocks with strong defensive attributes like relatively low shares in issue, tight shareholding structure, rising earnings and positive sentiment for its sector or individual stocks.

With all eyes on the major macroeconomic data, Q3 earnings reporting season and last quarter seasonality expected to change the prevailing trend, or direction, even as the 2023 electioneering activities are on the rise with the kickoff of party campaigns expected to be issue-based, considering the state of the nation’s economy and insecurity. Also, more listed companies have continued to notify the exchange of their closed period and board meetings dates to consider and approve the financials for the quarter-ended September 30, 2022.

The power of perception or sentiments cannot be overemphasized in stock trading or investing, seeing the impact of expected slowdown in aggressive hawkish monetary policy across the globe, with all eyes on the US September job report today. The UK experience, coming after the World Bank and IMF’s continued warning that the central banks should rethink and avoid pushing the global economy into yet another recession. We see that is already happening in UK, China, Japan and others. It is time for the Nigerian central bank and its Monetary Policy Committee to have a rethink before things go further out of hand.

The low valuation of the NGX, high earnings and dividend yields on improved earnings released so far in the year, coupled with the expectation of the third quarter corporate earnings to shape the market’s direction in the face of inflation hitting a 17-year high at above 20%. This has caused many players stay on the fence, waiting to confirm direction before jumping in, as outlook for the economy and the financial market remains unpredictable.

Despite the lingering high interest rates atmosphere, rising inflation and slowing industrial output as a result of policy changes and uncertainty around the globe, there are sectors, industries and individual stocks that are still seeing positive activities from traders and investors. There are equity players should pay attention to, as the correction in the NGX index action create buying opportunities in some sectors and individual defensive stocks with high dividend high yield and positive earnings growth.

Market internals are revealing the hidden forces that work for both short and long-term traders to get into the best position and allow you to stay in them for maximum profit, despite the market rebounding, or weakening further. The market’s internals that measure the forces behind the advancers and associated volume of the uptick or downtick. These two ratios tell you everything you need to know to predict future price movements. So, the volume pattern and index structure in recent sessions show position taking, while funds enter some stocks as revealed by money flow index which need to be confirmed, especially as negative sentiment supported the previous session candlestick formation.

To navigate the rest of the month 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 range market. Despite the mixed sentiment witnessed, it is time to go shopping for undervalued stocks, sectors and the next insider playing opportunity.”

Oil price sustained its powerful rebound on the back of OPEC production cuts to trade at $94.42 being the highest weekly gain in recent time in the midst of recession fear and supply tighten due to Russia Ukraine war. Despite the weak demand and fear of recession around the globe on hawkish monetary policy by central banks, just as China COVID-19 lockdown come to an end. The up and down movement of oil price also continues to drive volatility in the face of rising interest rates and inflation. Despite the bailout package of the Chinese government to simulate economic activates and stable employment, as well as that of Germany aimed at managing the energy crisis.

Thursday’s trading opened slightly in the red and it was sustained for the rest of the day, as selloffs and profit taking hit the highly priced stocks and others, a situation that pushed the NGX’s index to an intraday low of 47,238.35bps from its highs of 48,890.97bps before closing below sharply its opening level at 47,260.89bps.

Market technicals were negative and mixed, with a slightly higher volume of trade than the previous session in the midst of breadth favouring the bears on a selling pressure as revealed by Investdata’s Sentiments Report showing 1% buy position and 99% sell volume. The total transaction volume index stood at 0.80points, just as impetus behind the day’s performance was weak as Money Flow Index is looking up at 20.15pts, from the previous day’s 19.85pts, indicating that funds entered the market, despite closing lower.

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Index and Market Caps

The NGX All-Share Index, at the end of Thursday’s trading, shed 1,575.81bps, closing at 47,260.89bps, after opening at 48,818.20bps, representing a 3.20% decline, just as market capitalization fell by N856bn closing at N25.73tr, from the previous day’s N26.60tr, which also represented a 3.27% value loss.

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Meanwhile, the downturn was driven by selloffs in Airtel, MTNN, Okomu Oil, Presco, PZ, NGXgroup, Redstar Express and Honeywell among others, which impacted negatively on Year-To-Date gain, reducing it to 10.59%. Market capitalization gain YTD increase to N1.92tr, representing a 17.15% rise over the opening level for the year.

 Bearish Sector Indices

Sectorial performance indexes were in red, except for the NGX Energy that closed flat, while NGX Banking led decliners after losing 0.85%, followed by Industrial goods, Insurance and Consumer goods with 0.32%, 0.31% and 0.11% respectively.

Market breadth remained negative, as losers outpaced gainers in the ratio of 23:13; just as transactions in volume and value were mixed, as stockbrokers traded 140.67m shares worth N2.51bn. Volume was driven by trades in GTCO, Sterling Bank, Zenith Bank, Transcorp and Geregu.

Geregu Power and Livestock were the best-performing stocks, gaining 9.9% and 9.8% respectively, closing at N120.90 and N1.12 per share respectively on market sentiment and forces. On the flip side, Airtel Africa and Okomu Oil lost 10% each, closing at N1800 and N169.50 per share, purely on selloffs and profit taking.

Market Outlook

We expect the losing momentum to slow down on bargain hunters taking advantage of low prices reposition in the market ahead Q3 corporate earnings. This is just as banking stocks are gaining attention, despite profit taking that makes the sector more attractive for income investors, while portfolio rebalancing continues on bargain hunting in the midst of the worsening sovereign risks.

We note also the flow of funds into the fixed income segment on the rate hike by the CBN, as sector rotation persists. Analysts are also focused on the lookout for August CPI and flow of funds amid oil prices oscillation.

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Ambrose Omordion

CRO|Investdata Consulting Ltd

info@investdata.com.ng

ambrose.o@investdataonline.com

ambroseconsultants@yahoo.com

Tel: 08028164085, 08179547605