NGX: Mixed Trend Still On Bargain Opportunities, Reaction To Q3 Earnings Inflow

Market Update for the Week Ended October 20 and Outlook for October 23-27

Nigeria’s stock market halted its bull-run on profit taking, extending its consolidation range in the midst of the persisting hyperinflation, while fiscal and monetary policies direction remains unclear, and in the process dampening investor sentiments and confidence in the system. Despite the onset of the earnings reporting season with impressive numbers that support the market, with more corporate scorecards expected to hit the market in the new week. This is likely to drive more volatility, momentum and increased liquidity, depending on the state of the numbers expected.
It is noteworthy that the most recent macroeconomic reports have come mixed. For instance, the September Consumer price index, according to the National Bureau of Statistics (NBS), touched an 18-year high at 26.72% year-on-year from the August position of 25.80% owing to food supply hiccups that is driven by spiralling transportation cost. The rising food inflation is also worsening despite the ongoing harvest season, added to pressure on the exchange rate now pushing prices on daily basis.
The surprising thing here is that inflation on a Month-on-Month basis rose by 2.5% in September, a drop when compared to the 3.8% recorded in August, which seems a slight reflection of the ongoing harvest season. 
We also noted the recent policy adjustments by the central bank, with the controversial lifting of the ban on 43 items from access to the official FX windows, even as investors are looking forward to macroeconomic data and corporate earnings.
Corporate earnings do not move the overall market, it is the interest rates or yields, focus on the CBN and the movement of liquidity. Most people in the market are looking for earnings and conventional measures. Its liquidity that is a function of positive or negative sentiments that moves market. So, based on this perspective, as fixed income market yields continued to decline in the face of rising inflation and devaluation of Naira on daily basis due to persist shortage in FX supply in the exchange market, coupled with policy confusion and summersaults of the CBN on 43 items.
It was a bearish market in the period under review as the NGX index’s action remained on its consolidation range, after the 2008 strong resistance level turned another strong support level, while the market trades below the 67,000 points mark. The market is waiting for a positive catalyst and the usual seasonality seen to influence portfolio repositioning and sectorial rotation by investors.
The NGX is still intact as trades above the T line on a weekly chart to resist further decline, ahead of its critical support levels, amid selloffs in highly priced stocks, which pulled the indicators lower in the midst of a continued oscillation in transaction volume pattern. This further confirmed the wait-and-see attitude of market players, who are on the lookout for more corporate earnings, in the face of a dicey economic outlook and sovereign risk concerns.
The low volume of transaction in the market is also an indication that smart money can mark-up the price 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 ranging market to position in stocks with strong earnings capacity and bright prospects. The impressive corporate earnings from the early fliers like United Capital, Infinity Trust Mortgage Bank, Geregu Power and Unilever should give market players insight of what they should expect from different sectors of the market.
Meanwhile, market volatility continues to support technical traders in the midst of prevailing profit booking and mixed sentiments, resulting from portfolio repositioning and sector rotation in the midst of middle east war escalating and earnings expectation that signal the possibility of higher payouts at the year-end. This is especially true of those that suffered losses in the midst of the strong numbers posted by these companies, which revealed their undervalued state, as seen in the high dividend yields pointing to the possibility of bargain hunters taking position to hedge against the soaring inflation in the country.
To navigate Q4, 2023 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 market correction. 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 playing opportunity.
Oil price during the week under review slides to $92.16 per barrel in the midst of the ongoing middle east conflict and fear of higher rates for longer time to check inflation, despite the seeming cooling inflation. This is even as Russia restored diesel supply to Europe, as fear of a global recession resurfaced. 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
The negative outing for the week reflected selloffs as the market recorded three trading sessions of down-market and two days upmarket. The selling sentiment in the major sectors of the market and blue chip stocks pulled down the market, thereby creating opportunities for players to reposition their portfolios, amid interpretation and analyses of the earnings released so far.
The week’s trading started on a negative note, reversing the previous session’s gain, after losing 0.24%. This was halted on Tuesday when the index recovered 0.43% due to buying interest in banking stocks, which was sustained by midweek when the index inched up by 0.04%, before pulling back on Thursday and Friday, when it shed 0.38% and 0.27% respectively on selloffs. These brought the week’s total lost to 0.42%, compared to the previous week’s 1.12% gain.
Consequently, the benchmark NGXASI shed 285.28 basis points, closing at 66,915.41bps, compared to the week’s 67,200.69bps opening level, after touching an intra-week low of 66,909.10bps and a high of 67,440.20bps. Market capitalisation also fell by N156.3bn, representing a 0.42% value loss during the period, despite the listing of Guinea Insurance private placement of 1.81 billion shares at 50 kobo. Also, the shares of Courtville Business Solution was suspended for trading due to ongoing plans to delist the company from the Daily Official List.
The week’s top advancers’ table was dominated by low priced stocks and blue chip companies amid the profit taking that hit high priced stocks due to volatility and selling sentiments. Also notable is the fact that investors are taking advantage of the price correction to buy into value and high dividend yield companies.
Market breadth for the period turned negative as losers outnumbered gainers in the ratio of 46:28 on selling sentiments as revealed by investdata sentiment report showing 1% ‘buy’ volume and 99% sell position. Money Flow Index was looking down at 74.07bps from the previous week’s 76.59 points, an indication that funds left the market on a weekly chart.

Technical View

The NGX index’s action continued in its distribution phase as the index consolidated on the weekly chart with low traded volume signaling wait and see for traders, while position trading is ongoing by investors, as the market trades above the T line on a weekly time frame to sustained its uptrend in the midst of increased volatility and selling momentum. We note also that the index is trading above the 50-day moving average on the weekly time frame to signal possibility of continuation or reversal, which the state of Q3 financials will determine.

Bearish Sectoral Indices
The sectorial performance indexes were in red, except for NGX Banking that closed in green at 3.52%, while the NGX Insurance led the decliners’ after losing 0.96%, followed by Consumer Goods, Industrial goods and Energy with 0.46%, 0.07% and 0.02% respectively.
Transactions in volume and value were mixed, as stockbrokers transacted 1.50bn shares worth N24.28bn, compared to the previous week’s 1.47bn units valued at N24.43bn. Volume was driven by Financial Services, ICT Industry and Conglomerates. The was boosted specifically by trading in UBA, Fidelity Bank, Accesscorp, Etranzact and Transcorp.
The best performing stocks for the week were Thomas Watt and Daar Communications after, gaining 29.64% and 9.52% respectively, and closing at N3.63 and N0.23per share on sentiment and market forces. On the flip side, Sovereign Trust Insurance and Cadbury lost 17.5%and 16% respectively, at N0.33 and N12.60 per share, purely on profit taking and selloffs.

Outlook for the week
We expect mixed sentiment and trend to continue on bargain opportunities and reaction to Q3 earnings reports released so far. Also, Investors and traders await the unveiling of agenda by CBN new management term and key Ministries. However, retracement to the 65,559.46bps level and below is possible on profit taking as global and domestic events unfold.

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