NGX Pullback Triggers Portfolio Rebalancing, Sector Rotation Amid Earnings Expectations, Quarter-End Window Dressing

Post Views: 34

The Nigerian Exchange (NGX) is currently pulling back just like is happening across the globe due to global economic uncertainties arising from the twin evils of the ongoing trade wars and geopolitical tensions in the Middle East.

However, many stocks on the Nigerian exchange are revealing real value and upside potentials inherent in them on the strength of their earnings power, future growth and market perception in the face of the seeming improvements in the country’s macroeconomic indices, among others.

There are stocks today that will thrive in any environment and help buoy your portfolio, despite the fall in prices over the past weeks and days, but it doesn’t feel like the selling spree is over.

The market could stay ugly for a while before rebounding, even as all eyes are still on more audited financial statements and Q1 2025 in the month of April.

NGXASI Weekly Index (Opening chart)

Last week alone, the benchmark NGX All-Share index fell 4.45% below its all time high, which indicates market pullback and correction, which is not necessarily a bad development. Periodic corrections are quite normal and healthy in a bull market. The latest selloffs and profit taking since February 14 has weighed on the market’s Price to Earnings Ratio, and other key indicators. But this feels different. There seems to be more going on than stock prices just consolidating, or blowing off excesses to better prepare after the selling is over. The market environment may be in the early stages of a painful restructuring and rebound.

On the surface, things don’t look that bad at all. The market is down because of high cap stocks and some major sectoral indexes that had suffered various degrees of losses. These sectors drove the market index higher for most of the bull market. The heartbeat index NGX 3O and other sectors like Consumer Goods and Banking were the catalyst that drove the market and stock prices into their new 52-week highs.

But the financial service catalyst isn’t going away. The banking and insurance sectors will rebound. And these stocks can quickly make up for the lost time when it gets going again. Meanwhile, the rest of the market is still doing fine. Two of the five major sectors are still higher year-to-date. The Banking and Consumer Goods sectors are having positive YTD return, even after an ugly month for the overall market.

The economic news emanating from the country is not bad altogether, apart from the emergence rule declared in River State by President Bola Tinubu, which has been variously described as an overkill for the oil rich state, even as 12 Governors elected under the main opposition PDP prepare to challenge the declaration in court.

It is true that economic growth could be faster, but the GDP rebasing and year-base effect impacted positively on the recent GDP data and latest consumer price index figure.

Inflation is shown as gradually slowing down, while prices of goods and services stay relatively stability and no longer jumping up as witnessed in 2024, while the economy isn’t too bad. It should be noted that a slower economy increases the possibility of more pause or high rate cuts.

All things considered, we believe the market would be fine eventually, and should prepare to rally again in the midst of earnings expectation, the Rivers State political crisis and global economic uncertainty.

The market originally rallied after the removal of fuel subsidy and unification of exchange rates by the government as investors expected a strong economy, but the reverse was the case.

Yes, it has been taken that those things would likely take more time to have a tangible positive effect, but the market is good at finding ways to be happy in the short-term. And the government, through its economic managers would likely improve the long-term situation.

Sure, the unfolding events in Rivers State create a near-term uncertainty and the market doesn’t like that. It is also possible that those issues could be mostly resolved by this time next week. But the Nigerian equity market is slowly realizing something it doesn’t like: The government is more interested in taxes than fixing structural problems in the economy that will boost expansion and impact the stock prices positively in the near to long term.

These structural fixes may be the best thing, if undertaken to enhance national productivity and lower deficits. This administration could be paving the way for a stronger, healthier and more enduring economy and stocks market for many years to come.

If you tell traders and investors that the market may struggle for a while to pave the way for a better future, all you will hear is that the market stinks. The “long-term” concept doesn’t compute. Telling them that things will be great in the second half of 2025 and beyond is like telling them things will be lousy until the year 2030.

This administration is after the bigger fish. It isn’t very concerned with short-term market gyrations, which may be the best thing for stocks ultimately. But when the near-term indifference from this supposedly market-friendly administration finally sinks in, the NGX investors and managers might run for cover.

Anything can happen. The market could take off tomorrow and not look back. But there are powerful reasons to believe the market could oscillate for a while. It makes sense to focus on value-stocks that can thrive under any market condition.

NGX Sectorial Indexes Charts

NGX Banking Index Weekly Chart