NGXASI Dips Further, Amid Portfolio Realignments Investors Reactions To MPC Rates Hike

Market Update for February   27

It has become obvious that the Central Bank of Nigeria’s rates hike has rattled investor sentiment and confidence on the Nigerian Exchange as bear dominance continued at the midweek, following panic selloffs and portfolio rebalancing for low risk investment windows on higher yield outlook in the fixed income market. Despite the prevailing runaway inflation environment in the midst of the market entering the peak month of the earnings reporting season for audited accounts of major big names in the market with their corporate actions with significant impact on their share prices, depending on the state of the results.

Discerning investors and smart traders that understand the opportunities that comes with dividend season, know how to position in fundamentally sound stocks with equalization dividend policy and histories of release date. The pullbacks create entry opportunity and exit positions on big announcements for profit, following the corporate action dates and your technical analysis reading to stay ahead of the game for desired returns. Selling pressure was witnessed across major sectors of the market in reaction to the latest monetary policy decisions, which was expected as portfolio rebalancing and sector rotation persist. Meanwhile, market players remain confident in the midst of dividend expectations and volatility.

More companies during the session notified the exchange of board resolutions about their audited financials of 2023 and submission to their regulators, while others are announcing board meeting dates to approve their financial statement for 2023 and dividends. Also at the midweek, United Capital and Aiico Insurance rescheduled their board meetings, while Nigerian Enamelware released its 9-month result which came mixed with top line up, but bottom line was negative.

The composite NGX All-Share pulled back further on an above average traded volume and negative market breadth as selloffs hit finanical stocks and others ahead of their corporate actions any moment from now till end of the quarter. Market players reacted to the seeming mismatch of policies by the fiscal and monetary authorities that is evident in the rising macroeconomic headwinds. Unfortunately, an end to the situation is not insight, due to the triple evils of Naira devaluation, imported inflation and lingering insecurity, among others. These continue to weaken the purchasing power of Nigerians, wiping out their entire savings. Even when the rate hike would encourage savings that leads to investing.

The change in trend and momentum persists, even as the index trades below the T-Line to gather more strength and surpass the resistance level when it reverses up, already the index’s action is on decline phase. As the recent outcome of policy meeting has further put pressure on the market in the face of portfolio investors continue to diversify their investments across different windows.

The continued pullbacks and correction in the market creates buy opportunity for dividend investors ahead of the release of more audited accounts. Investors should watch out for the value areas of resistance and support levels, as more earnings hit the market any moment from now. The index’s action has displayed a mixed picture as market players eagerly await numbers from the companies, following the optimism fueled by the belief that the impressive performance from the financial sector among others may impact the market positively. This is despite concerns about the changing fundamentals of the economy in the face of rising macroeconomic headwinds that will support a revaluation of assets.

The chart pattern and candlestick formation at the end of the trading session revealed continuation of downtrend that requires confirmation as trading open on today.  Therefore, market players should target companies with consistent track records of dividend payment, strong fundamentals and growth prospects that will support further growth in earnings which price feeds on in any market cycle. Technically, the index’s action is still relatively at overbought state with bearish RSI and topping chart pattern that signaled the ongoing correction.

The momentum indicators signaled weakness in the market, as the ADX continues to look down at 46.34, while RSI and Money Flow Index were mixed to read 51.74 and 52.49 points against the previous session 56.09 and 51.42 points respectively. This should be watch by players as they trade with caution because funds are somewhat in the market. The trading volume pattern suggests hold and watch disposition of market players, as traders reduce position in some sectors in the face of others investment windows returns remain below inflation and falling Naira.

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Oil price at midweek continue its oscillation, as it trades at $83.62 per barrel in the midst of expected consumer price index and continued attacks on Houthis over the Red Sea disruption. Just as Middle East conflict and that of Ukraine and Russia war persisted in the face of inflation resurfacing again.  The rising geopolitical tension across the globe is also a major threat to many economies and the commodity market. Also, oil supply increase by OPEC and others impact oil price as it continued to oscillate. This trend may likely continue in 2024, this up and down movement of oil price also continues to drive volatility.

Meanwhile, midweek’s trading started in the downside and it was sustained throughout on profit taking and selloffs in low, medium and large cap stocks. This pushed the NGX’s index below the 100,000 psychological line to an intraday low of 99,283.18bps, from its highs of 100,495.20bps, before closing sharply below its opening figure at 99,302.57ps.

Market technicals for the session were negative and weak, as volume was higher compared to the previous session in the midst of breadth favoring the bears on a selling sentiment as revealed by Investdata’s Sentiments Report showing 2% buy position and 98% sell volume. The total transaction volume index stood at 0.78 points, just as energy behind the day’s performance was relatively weak as Money Flow Index is looking up at 52.49pts, from the previous day’s 51.42pts, indicating that funds entered the market, despite the correction.

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Index and Market Caps

The NGXASI, at the end of trading shed 1,280.32basis points, closing at 99,302.57bps after opening at 100,582.89bps, representing a 1.31% decline, just as market capitalization fell by N720.59bn, closing at N54.32tr from the previous day’s N55.04tr, which also represented a 1.31%  depreciation value.

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Midweek’s downturn was driven by selloffs in the shares of NB, FBNH, Wapco, Dangote Sugar, Transcorp, UBA,Zenith Bank Accesscorp, Flour Mills and NEM, among others, which impacted mildly on Year-To-Date gain which reduced to 32.68%. Market capitalization YTD gain stood at N12.52 trillion, representing 32.67% above its opening level for the year.

Bearish Sector Indices

The sectoral performance indexes for the session were in red, save for NGX Energy that  closed flat, while NGX Banking led the decliners after losing 6.90% followed by Insurance , Consumer  and Industrial goods with 3.72%, 1.20% and 0.41% respectively.

Market breadth was negative with losers outnumbering gains in the ratio of 51:5, while transactions in volume and value were mixed after players exchanged 396.23m shares worth N5.83bn. Volume was driven by trades in, Transcorp, UBA, Accesscorp, Zenith Bank and Universal Insurance.

PZ and Juli were the best performing stocks, gaining 10% and 9.93% respectively, closing at N29.15 and N3.10 per share respectively on market forces and sentiment. On the flip side, NB and Wapco lost 10% each, closing at N30.60 and N31.95 per share, purely on selloffs.

Market Outlook

We expect bearish sentiment to continue as players digest outcome of MPC decision and take advantage of the pullbacks in the face of expected audited corporate earnings and ongoing portfolio rebalancing. This is amidst the volatility and pullbacks that add more strength to upside potential. As such, investors should take advantage of price correction. Also looking at the trends and events across the globe and domestically.

Ambrose Omordion

CRO|Investdata Consulting Ltd