NGXASI Stay Negative, But Mixed Trend Ahead Still, As Investors React To March Full-Year Earnings


Market Update for June 2

Thursday’s trading activities on the Nigerian Exchange extended its bearish run, as the NGX All-Share Index suffered further decline, thereby recording its fourth consecutive negative outing session on low traded volume and negative market breadth.

This ongoing downtrend was attributed to profit taking and reaction monetary policy rate hike by the Central Bank of Nigeria (CBN), and concerns for impending global economic recession which latest economic data or reports are not pointing to.

Just as EU leaders are encouraging the president of Russia and Ukraine to embark on negotiation and cease fire. As OPEC plan to consider extra-large hike in oil production to compensate for Russia’s lost oil production in the wake of western sanctions including the EU’s Russian oil import ban that was agreed to earlier in the week.     

The pullbacks witnessed since the beginning of the week’s trading followed profit booking, price adjustments in blue-chip and highly-priced stocks for the 2021 full-year dividend as recommended by their boards. Also, as selloffs continues across the major sectors, just as funds continue to flow into the fixed income space appealing to some investors, especially those who are risk-averse ahead of consumer price index reports from NBS. 

In any market condition, all you need is price because assets price trends in volatility, whether in low or high volatility, so when investing in the stock market, always approach it as a market of stocks, regardless of the environment or situation because there are always stocks showing leadership and trending higher. Here, you may have to look harder to identify them, and depending on current market conditions, there are always stocks that are going up. The same can be said for weak stocks, regardless of the environment or situation, there are always stocks that are traveling south too. So look for stocks with best momentum and relative strength characteristics.     

In the ongoing market correction, following and trading prices action simply mean that the market tells you what to do and not the other way round because price is always right as it does not care what a trader feels. Bull markets can go on for days, weeks, months, and years, but bear markets happen unexpectedly and can quickly destroy a trader’s profits, or even trading account. If stop loss is not in use.

Bear markets move with greater velocity than bull markets and are accompanied by high volatility, due to investors’ emotions. With the rate hike triggering the flow of funds from equities to the fixed income market, the spiraling inflation may support the entry of funds into commodity-backed securities or stocks to hedge against inflation. Also, investors and analysts are keeping a close watch on developments around the political space, ahead of next year’s general elections, which have started with the ongoing primaries of the various political parties. Already, with the presidential candidate of the main opposition Peoples Democratic Party (PDP) selected, investors and, indeed, Nigerians are waiting for that of the ruling All Progressives Congress (APC). This will reduce the quantum of political uncertainty around the 2023 general elections and what is likely to play out for the economy in the next political dispensation, given the known dispositions of the frontline candidates. These are, of course, in the absence of an upset from a third force, all of which will be priced into the market, in the coming weeks and months.

Oil prices pulled back powerfully in the international market to trade at $117.5 per barrel, after touching a two-month high of $123.8 on the plan of creating a cartel of oil consumers to keep prices down in the midst of china lifting the lockdown imposed due to the impact of the ravaging Coronavirus pandemic and the recent cut in interest rate to support its economy. And also, the EU plans to enforce the embargo on the importation of Russian oil. As these chronic high energy prices are killing the global economy, heightening inflationary pressures across the globe on a weak economic outlook, thereby influencing monetary policies of central banks as they move to checkmate the impacts of the Russia-Ukraine conflict on the global economy to avoid economic recession. The nation’s soaring inflation is a potent threat to the fixed income market and investment yields, which should be an indication that there will be a reversal of funds flowing back to equity space in no distance time as institutional investors balance their portfolios.

However, price corrections are as a result of profit-taking and selloffs, hence the need to rely on your stop-loss effectively at this point of the distribution phase signals continuation, or reversal. This is especially when high-cap stocks that control 70% of market capitalisation move up or down ahead of reactions to their earnings and expected dividend payments in May and June 2022.

The NGX index’s action has technically entered the decline phase, trading below the ‘T-Line’ and the 20-day moving average, but the market remains strong, despite the profit-taking that started the week. The strong support level is 51,151.32bps region, while volatility persists and downtrends towards the next breakdown sported around 52,587.01bps. Should the index break this point, the next visible support is 51,940.57bps.

The possibility of the trend being sustained is high and a function of market forces and improved economic conditions during this month and beyond, following which we advise investors to play defensive stocks and reduce investment risks around the market.  

Meanwhile, Thursday’s trading opened slightly  on the  downside which was sustained throughout the session, despite oscillating on profit-taking across  the major sectors and high priced stocks, a situation that pushed the NGX’s index to an intraday low of 52,752.24bps from its highs of 52,975.15ps before closing below its opening points at 52,840.21 points.  

Market technicals were negative and mixed, as volume traded was lower than the previous day in the midst of breadth favoring the bears on a selling sentiment as revealed by Investdata’s Sentiments Report showing a 76% sell position and 24% buy volume. The total transaction volume index stood at 0.75 points, just as momentum behind the day’s performance was weak with Money Flow Index looking down at 33.02pts, from the previous day’s 40.16pts, indicating that funds left the market.

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Index and Market Caps

At the end of Thursday’s trading, the benchmark index NGXASI shed 110.13bps, closing at 52,840.21bps, after opening at 52,974.15bps, representing a 0.25% drop. Similarly, market capitalization fell by N72.25bn, closing at N28.49tr, from the previous day’s N28.56tr, which also represented a 0.03% value loss.

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The session downturn was driven by profit-taking and selloffs in Airtel Africa, Dangote Cement, International Breweries, FBNH, GSPEC Plc,, Accesscorp, Mansard, GTCO and AIICO, among others. This impacted mildly on Year-To-Date gain, which fell to 23.70. Market capitalization growth stood at N6.17tr YTD, representing a 27.87% rise over the opening level for the year.

Bearish Sector Indices

Performance indexes across sectors were down, except for the NGX Industrial Goods that closed flat, while NGX Consumer goods led decliners after losing 1.29%, followed by Insurance, Banking, Insurance and Energy with 0.97%, 0.60%, and 0.07% respectively.

Market breadth remains negative, as decliners outnumbered advancers in the ratio of 26:12; just as transactions in volume and value terms were mixed, with stockbrokers crossing 274.43m shares worth N4.03bn. Volume was driven by trades in FBNH, Transcorp, Zenith Bank, GTCO and UBA.

Ellah Lake and PZ were the best-performing stocks of the session, gaining 9.62% and 9.57%, closing at N3.42 and N12.60 per share respectively on market forces. On the flip side, Royal Exchange Assurance and GSPEC Plc lost 10% and 9.72% respectively, closing at N0.90 and N2.50 per share, on profit-taking and selloffs.

Market Outlook

We expect a mixed trend in reaction to March year-end earnings report, as funds flow to the fixed income market on the rate hike by CBN, just as portfolio rotations persist as players digest the macro-economic data and Q1 corporate earnings release, ahead of May consumer price index and purchasing manager index reports to support recovery in the new month amid oil prices oscillation. Also, the market continues to interpret the rising inflation in relation to the crude oil price and other factors, in the midst of profit-taking and portfolio rebalancing. This will result in market players targeting fundamentally sound and dividend-paying stocks in the hope of dividend announcements.

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Theme: Profiting From Asset Pricing In An Uncertain Market, Rising Rates Environment

1. The State of the Market & 2022H2 Opportunities: Looking at The Fundamental Mix

2. Power of Price Action in identifying Opportunities in Any Market Cycle

3. State of the Economy & Negative Real Rate Of Return In the Fixed Income Market

Takeaway from the master class

A. Identifying profitable sectors and industries to hedge against inflation & down market

B. Growing your wealth through commodity-backed assets on the NGX

C. The power of double earnings on the share prices and performance of companies

D. Trading companies’ earnings with technical tools for higher returns

E. Why all you need to make money in equity trading is price

F. The strength of NGX sectorial indexes in picking profitable trades

G. 5 Hot Stocks to beat inflation and grow your portfolio


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Ambrose Omordion

CRO|Investdata Consulting Ltd

Tel: 08028164085, 08179547605


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