NGX Pulls Back Amid Shift In Sentiment, Rising Interest Rates, Economic Trends

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The Nigerian Exchange began the first trading day of the week under review on July 22, 2024 on a positive note with a marginal 0.03% increase in its benchmark All-share index and market capitalization, amid cautious trading as investors bet on the possible outcome of the two-day Monetary Policy Committee meeting which opened that day. The growth was driven mainly by trading in the shares of Julius Berger which gained 5.71%.

However, the remaining four trading days were bloody, as most portfolio holders went for sectorial rotation and portfolio rebalancing, following which the week ended with the All-share Index sliding by 2.33%. In the process, equities investors lost a princely N1.33tr, as market capitalization fell to N55.61tr. The All-Share Index closed the at 98,201.49 basis points.

The index’s decline was buoyed by serious sell-offs in the shares of Dangote Cement, the most capitalized stock on the exchange, in what may not be unrelated to the ongoing face-off between its majority shareholder and the Federal Government over sundry issues concerning the $20bn Dangote Petroleum Refinery. Dangote Cement lost all of 9.99%, amounting to N1.1tr of its over N11tr market value.

Insurance stocks led the gainers’ table during the week with sovereign Trust and Coronation insurance accumulating 14.29% and 13.16% gains respectively, Secure Electronic Technology Plc and Omatek Ventures led the decliners, after shedding by 26.32% and 14.86% respectively.

NGXASI Weekly Chart

The Central Bank of Nigeria’s MPC held its 296^th meeting on July 22 and 23, 2024, with members once again maintaining a hawkish disposition, leading to yet another raise in interest rate, this time by 50 basis points. They voted to increase the benchmark Monetary Policy Rate to 26.75%, from 26.25% two months ago. The marginal increase is, however, proof that rate cut is imminent in a bid to cushion the hardship in the country that is obvious everywhere.

The nation’s equity market reacted to the marginal increase as it fell by 0.12% on Wednesday in the aftermath of profit taking in the shares of United Capital and United Bank for Africa, following the surge recorded two weeks ago by the former.

However, global economies are seen cutting down their interest rates, as all indicators are pointing towards a dovish stance for the U.S and UK. The Bank of Canada already took a dovish stance by cutting interest rate by 25bps for the second consecutive month, bringing it down to 4.5%.

This rate slash by major economies is a plus for the Nigerian space, given that a high interest rate environment will attract foreign portfolio investors, while a reduction in the increment in rate hike will enhance stability in the economy

NGX Banking Index Weekly Chart

What is happening in the Nigerian market is akin to developments in the US, and even the Japanese stock market. Both the S&P 500 and Nasdaq Composite lost 2.3% and 3.6% respectively, bringing them to their worst levels since December and October 2022.

The NGX lost 2.33% in the week under review, its lowest low since May 27, 2024. The Money Flow reading of 48.75 indicates that significant funds has left the capital market, compared to the level a fortnight ago which stood at 53.08,. The Relative Strength Index of 28.8 suggests that the market is in an oversold region.

There is no market in the world that ever remains on an uptrend without shedding weight at some point. Last week, almighty tech company- Nvidia shed over 6%, cutting its market capitalization to $2.78tr. A stock that once had the highest market capitalization at some point, surpassing Microsoft and Tesla.

On its part, the NGX has broken the 21-Day Moving Average(T-line), heading towards a strong resistance point around 97,500 points of the All-Share Index. A breakout of this region might lead to further decline in the local bourse.

However, it is not likely to hit the region because there is a marginal hike in MPR and also, this is earnings season, a season where more funds accompany good result. With more impressive results likely to hit the markets in the coming days, there would be commitment of funds from local investors because good earnings boost investor confidence. Market declines create more opportunities for late comers and discerning investors to pitch their tents for capital appreciation and dividend reward.

NGX Insurance Index Weekly Chart

The insurance index has shown remarkable improvement compared to the previous week, driven largely by the robust recovery by Sovereign Trust and Coronation Insurance, which have bolstered an upward momentum in this sector. Notably, this sector topped the list of weekly gainers, significantly boosting investor confidence. It currently presents a promising opportunity for both capital appreciation and dividend rewards. As earnings reports start to roll in, prices of stocks in this sector are likely to experience significant growth, similar to a powerful boost.

Liquidity remains a critical factor for any exchange, following which savvy traders should position themselves early to capitalize on potential profits. Additionally, investors should keep an eye on dividend opportunities, as companies in this sector frequently offer interim dividends to shareholders with the likes of Aiico offering dividend to its shareholders on Friday.

Currently, the market is rebounding from earlier declines caused by profit-taking activities and sector rotation. Companies such as Linkage Assurance, Consolidated Hallmark, Sovereign Trust, and Coronation Insurance have all made notable recoveries from previous losses. Despite this, the Money Flow Index stands at 35.5, down from last week’s reading of 43.5, reflecting ongoing profit-taking in some stocks within the sector. Strong Q2 earnings are expected to significantly enhance the sector’s outlook, potentially leading to further gains.

NGX Industrial Goods Index Weekly Chart