NGXASI May Rebound On Window Dressing, Oil Price Rally, Earnings Expectations

Market Update September 27

Monday’s was yet another mixed trading session on the Nigerian Exchange, as the benchmark index NGXASI closed lower on a low traded volume and positive breadth to short-live the two sessions of bull transition and recovery, just as the industrial goods and insurance stocks suffered losses on the impact of market forces and profit-taking.

The seeming slowdown in the NGX All-Share index amidst portfolio reshuffling and the quarter-end window dressing ahead of the earnings reporting season mainly followed the 2.94% decline by BUA Cement.

Value and growth investing among discerning players continued on the exchange as buying interests and positive sentiments for undervalued stocks and sectors with high upside potentials to rally on uptrend earnings and expected impact of inflation and high exchange rates on the industries and companies.

Also, with the rally in oil prices influencing the nation’s external reserves, the Oil/Gas stocks are becoming attractive to players, while positive sentiment for the sector is on the increase ahead of the Q3 earnings season and last quarter numbers. There is the seemingly ambitious projection of oil price hitting $90 per barrel before the end of 2021, even as the seasonality that supports high consumption of energy and fuel is around the corner.

Technically, the low volume traded and the seeming divergence between the NGX index action and MACD histogram suggests that markup by smart money is underway, which we wait to confirm during the trading sessions of this week. Monday’s pullback was due to the BUA Cement exerting its weight on the NGX All-Share index, given that it is one of five stocks that control 60-70% of the market index. The others are Airtel Africa, MTN Nigeria, Dangote Cement, and Nestle. Also, these high cap stocks have helped the movement of the NGXASI, especially against the backdrop of the rule that price can only up or down when 100,000 units or more of stock are traded.

Meanwhile, Monday’s trading started slightly on the downside and oscillated on selloffs and buy interests in high, medium, and low-priced stocks, pushing the NGX index to an intraday low of 38,511.97bps, from its highs of 38,965.30bps, after which it closed below its opening figure at 38,864.33bps.

Market technicals were positive but mixed with lower volume traded than the previous day, while breadth favoured the bulls on positive sentiments as revealed by Investdata’s Sentiment Report showing 78% ‘buy’ volume and 22% sell position. Total transaction volume index stood at 0.59 points, just as the momentum behind the day’s performance was weak, and Money Flow Index turned up at 34.47points, from the previous day’s 32.22points, indicating that funds entered in, despite the down market.

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Index and Market Caps

At the close of Monday’s trading, the composite NGXASI shed 97.95 basis points to close at 38,884.33bps, representing a 0.25% decline, just as market capitalization fell by N51.06bn, closing at N20.25tr, from the opening value of N20.30tr, also representing 0.25% value loss.

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Specifically, Monday’s downturn followed selloffs and profit-taking in BUA, GTCO, Zenith Bank, Ecobank Transnational Incorporated, UBA, Fidelity Bank, and United Capital, among others, which impacted negatively on Year-To-Date loss that dropped to 3.42%. This was just as the cumulative loss in market capitalization stood at N791.42bn, representing a 3.79% decline from the year’s opening value.

Mixed Sector Indices

Performance indexes across sectors were mixed, as the NGX Insurance and Industrial Goods index closed 2.39% and 1.09% down respectively, while the NGX Oil/Gas Index led the advancers, after gaining 1.2%, followed by the Banking and Consumer Goods with 0.40% and 0.24% respectively.

Market breadth was positive, as gainers outnumbered losers in the ratio of 20:12, while transactions in volume and value terms fell after stockbrokers traded 139.45m shares worth N1.27bn, compared to the previous day’s 633.52m units valued at N6.45bn. Volume was driven by trades in Sovereign Trust Insurance, Fidelity Bank, GTCO, Transcorp, and Courtvile Business Solution.

University Press and Transcorp Hotel were the best performings, gaining 9.8% and 9.7% to close at N1.12 and N5.43 per share respectively on low price attractions and market forces. On the flip side, Mansard insurance and Chams lost 9.94% and 4.35% respectively, closing at N2.99 and N0.22 per share purely on selloff and profit-taking.

Market Outlook

We expect the rebound on quarter-end window dressing, rallying oil price above $80, and Q3 earnings expectation, just as investors and traders take advantage of pullback to position ahead of earnings reporting season. Also noteworthy is the fact that many stocks are trading within their buy ranges, a situation expected to attract funds into the equity space, given the Dividend Yield capable of serving as a hedge against inflation.

Also, institutional investors and others continue to digest recently release economic data ahead of the month and quarter-end, as well as the continued repositioning of portfolios for the year’s last quarter. Also, investors are still observing the interplay of forces in the FX market as the CBN gives a guideline for the new digital currency platform. The day’s low volume suggests that institutional investors and others are still cautiously looking at the economic data and policy direction of the economic managers. It is noteworthy that oil price pullback in the international market; corporate actions, as well as the interim dividend possibilities, are around the corner.


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