NGXASI Chalk 3.88% In January, But Volatility Ahead Amid Mixed Outlook, Price Corrections
Market Roundup for January
The Nigerian Exchange (NGX) witnessed another bullish but volatile January 2023, closing higher while sustaining the positive trend and patterns for the fourth consecutive year on the back of impressive corporate earnings inflow and amidst increasing global and domestic headwinds.
During the period, the NGX market capitalization crossed the N28tr mark, and Investdata notes that the January markup phase is a bull sign that indicates the presence of institutional players, given the relatively improved number of deals and volume, since November 2022.
The market had a strong bull-run despite the selloffs and profit booking in Nestle and Dangote Cement, among others, but buying interests in blue chip companies and dividend paying stocks that had rallied supported the uptrend in the face of the latest rates hike, uncertainties around the 2023 general election, and the slow economic growth, among others. We cannot overlook the effects of recent events, especially last week’s downgrade of Nigeria’s economy by Moody’s, the disconnection in the recent rate hike to 17.5%, as decline in NTB primary market auction rates in the short and long tenors.
This should make the equity space more attractive for fund managers in the new month, despite February 25, general election, especially as smart money reposition their portfolios for dividend income. The bull-run during the month was influenced by the appreciation in the prices of high caps, like Geregu Power, BUA Foods, BUA Cement, MTNN and other shares. They helped January patterns repeat itself and extended the bullish run for three consecutive months, due to the presence of the usual Santa Claus rally and low valuation.
At the end of January, the Nigerian equity market continued December’s positive outing, rallying to support the recovery since March 2020. This was despite the uptick in inflation rate to 21.47% that slowed down in the month of December to 21.34%, according to data from the National Bureau of Statistics (NBS).
Trading metrics and patterns on the Nigerian Exchange (NGX) in January, the first month of the year, signaled a trend continuation with gaps being filled ahead of the release of more audited earnings reports, especially by early filers in February and an eventual portfolio reshuffling along sectors and companies’ performance. On Tuesday, the market received its first full year 2022 audited result from MTNN with impressive performance and offer of a N10 dividend per share.
The positive responses to the better-than-expected numbers as of release dates and positioning in mispriced stocks by investors had supported the price rally and market uptrend. This confirmed the inflow of funds into equities, and confidence in the market.
As noted earlier, the unaudited scorecards of various listed companies have given insight as to the real state of the economy and the companies in Q4. On the strength of the corporate numbers released so far guess what the Q4 GDP will look like when it is eventually published by the National Bureau of Statistics.
The possibility of prices rallying further from here in this new month is high, amidst portfolio reshuffling on the strength of the Q4 and unaudited 2022 full year numbers. Investors can, there rest assured of juicy rewards in form of dividends when the audited full-year score-cards begin to flow into the market, with the possibility of improved payout.
In the 21 trading sessions of January, the NGX All-Share index recorded 13 gains and eight losses, resulting in 3.88% year-to-date gain, even as we note strong momentum state of the key performance index and some companies, their fundamentals, and the possibility of the seemingly high dividend yields attracting more inflows to the market. Worthy of note also is the fact that some equities are still grossly undervalue.
Meanwhile, the benchmark Index gained a total of 1.987.61 basis points, closing at 53,238.56bps, after touching a high of 53,299.54bps from its low of 50,830.51bps for the month. The index opened at 51,251.06bps, on strong buying interests that impacted positively on the index and stock prices, pushing them further up to breakout various resistance levels and the 53,000 psychological lines heading to 54,212bps- the last peak.
Total ‘buy’ volume for the month was 98% and 2% sell position, further extending the bull transition from last year, while volume index for the period was 0.71. Market capitalization rose by N1.08tr, closing at N28.998tr, from N27.915tr, representing a 3.88% appreciation in value, helped by capital appreciation in high cap stocks.
Traded volume for the period was up slightly by 0.07%, at 4,462bn shares, as against 4,459bn units recorded in the preceding month, just as market breadth for the month was positive with advancers outnumbering decliners in the ratio of 76:18 to sustain the December bull position that resulted from factors mentioned above.
Bullish Sectorial Performance
The sectorial performance indexes were bullish. As shown by the chart, the NGX Banking, Consumer Goods, Energy, Insurance, Industrial Goods and other indexes boosted the market during the month, outperforming the general market. The NGX Growth and Banking indexes gained a total of 15.45% and 7.51% respectively, driven by market sentiment for low cap stocks and rebound in banking stocks. The NGX’s Dividend Yield index that was supported by price appreciations in dividend paying stocks with high yield that recorded 4.8%; the NGX mainboard index garnered 4.02%, to support the market performance during the period.
Others represented in the chart below reveal investors’ positive sentiment and the clear decision among traders, as the market’s Price-To-Earnings Ratio stayed below 15 times.
Best And Worst Performing Stocks For January
The best-performing stocks for the month under review were predominantly a combination of low, medium and high caps across the sectors, led by International Energy Insurance, which gained 97.37%, as a result of its low price attraction and ongoing Mandatory Takeover bid priced at N1.60 by Norrenberger Advisory Services. It was followed by John Holt and Mutual Benefits Assurance with 82.19% and 44.44% respectively. Thomas Watt climbed 35.05% up, on market sentiment, while Geregu Power chalked 29.93%; among others.
On the other hand, the month’s worst performing stock was Royal Exchange Assurance which lost 33.02%, amidst selloffs and unimpressive earnings performance; followed by Champion Breweries which shed 12.73% due to profit taking from its recent rally. Honeywell Flourmill’s share price fell by a further 11.11%, showing an apparent lack of investor confidence in the company due recent Supreme Court judgement against it regarding its N5.5bn debt to Ecobank Nigeria, an arm of Ecobank Transnational Incorporated, made worse by its unimpressive Q3 numbers. NCR lost 10% of the year’s opening value, due to profit taking and selloffs as investors’ seek to reposition in dividend paying stocks with prospect of future growth in earnings that will drive share price and payout.
The NGX’s Index action for the month of January revealed an uptrend and a V shape bullish chart pattern that supports trend continuation, as the index is set to breakout another strong resistance level of 54,000bps and 54,212.98 ahead of the audited financial reports. At the same time, it is trading above T line and its 50-Day Moving Average on the monthly chart, with positive sentiments and improved traded volume.
The market is still trading within the V-shape recovery pattern, despite the likely mixed trend on profit taking and price correction, any moment from now as general election drew closer, depending on market forces. The benchmark index momentum remained strong on a daily, weekly and monthly time frame, reflecting an increased inflow of funds that pushed stock prices up in the first month of 2023, extending the historical positive sentiment in January effect trend, while maintaining the pattern of uptrend during the month in recent years.
The trading patterns and momentum, going forward, are likely to improve or change, as investors react to the expected audited full-year earnings news, portfolio rebalancing and repositioning, with early filers kicking off the season in February with dividend news announced earlier by MTNN with its corporate action of N10 each. Market technicals for the month were positive, a situation expected to remain unchanged in the new month.
Volatility is expected to continue in the new month, even as the outlook remains mixed due to likely price corrections, or pullbacks for a few days, due to profit taking and portfolio reshuffling ahead of year-end and 2023 corporate actions and election. The anticipated correction in the new month will, however, strengthen recovery. Despite the rise in inflation, insecurity and the global economic headwinds.
But investors at this point should not be greedy, but let their decisions be guided by their investment goals and exit strategies, even as the healthy inflow of funds into the equity assets due to prevailing rates disconnection in money market is likely to continued till next NTB primary auction and MPC meeting.
Again, the current breakouts of resistance levels offer traders opportunities to position for the short term, while investors should target fundamentally sound, and dividend-paying stocks for possible dividend income and capital growth.
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