NGXASI Sheds 3.15% Amid Corrections, As Investors Realign Portfolios Ahead Of Earnings Inflow

Market Update for February    19

Trading activities on the Nigerian Exchange opened the week on a negative note once more in what may be a reaction the latest Consumer Price Index numbers showing inflation at 29.9% in the month of January, amid the continued depreciation of the Naira. Also, there is the rising yields in the fixed income market weighing on the equity space owing to selloffs that hit large cap stocks like Dangote Cement, MTNN, NB and banking stocks in what may be the effect of market correction. It may not also be unrelated to the negative numbers from Nigerian Breweries at the weekend showing a flat topline and huge loss after tax after the nation’s oldest and foremost brewing giant posted a foreign exchange loss that bloodied its numbers, blinking any hope of dividend.

The benchmark NGX All-Share index closed lower on a low traded volume and negative market breadth that reflects profit taking and selloff in the market, halting three consecutive sessions of bull run. The benchmark index recorded its biggest daily fall in the recent years, as investors and traders react also to the seeming mismatch of policies by the fiscal and monetary authorities, with yet no clear direction as to where the economy is headed with 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.

The recent fake out or breakout of the resistance level of 105,740.38 basis points was confirmed with Monday’s pullback after the index tested 106,087.80bps during trading before pulling back. The index’s action again has entered its distribution phase expected to usher in the decline phase, or reversal as all eyes are still in the audited corporate earnings and dividend declaration. Portfolio rebalancing continues in the midst of the ongoing FGN Saving bond auction ahead of TB primary market auction at the midweek and policy meeting of CBN scheduled for February 26-27. However, we note that although the all-important meeting of the CBN Monetary Policy Committee (MPC) holds next week Monday and Tuesday, the names of committee members are yet to be announced, if indeed, it has been constituted.

Meanwhile, the NGX witnessed selling pressure in the midst of continued sector rotation and portfolio repositioning, as this pullback 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 equity market is a leading indicator of the economy any time and any day, as such all eyes are still on the fiscal and monetary authorities for a clear direction of where the economy is heading, given developments in the FX market and global economy, especially the sustained geopolitical tensions in the Middle East and Eastern Europe. There is also the fear of a recession, among other issues that will continue to influence investment decisions, while driving volatility. The NGX index’s action trades below the T-line on daily basis in the midst of high volatility and mixed momentum to remain above the short- and long-term Moving Averages on the weekly and monthly time frame.

The candlestick formation at the end of the trading session revealed a reversal uptrend and continuation which requires confirmation.  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 at overbought state with bearish money flow divergent which a topping chart pattern that signal correction.

The momentum indicators confirmed weakness of the market, as the ADX continues to look down at 65.25, while RSI and Money Flow Index are in the southward direction at 63.90 and 49.94 points against the previous session 77.16 and 56.36 points respectively. This should be a concern for investors and smart traders as they trade with caution because funds are still leaving 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 rebounded on Monday to continue its oscillation, as it trades at $83.46 per barrel in the midst of weak US retail sales and dollar in the face of escalating Middle East conflict. Coupled with the Ukraine and Russia war that had 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, Monday’s trading started in the upside before the pullback in the afternoon which was sustained for the rest of the session on selloffs in highly priced stocks and blue-chip companies among others. This pushed the NGX’s index to an intraday low of 102,393.20bps, from its highs of 106,087.80bps, before closing sharply below its opening figure at 102,393.20ps.

Market technicals for the session were negative and mixed, as volume was lower 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 0% buy position and 100% sell volume. The total transaction volume index stood at 0.39 points, just as impetus behind the day’s performance was relatively strong as Money Flow Index is looking down at 49.94pts, from the previous day’s 56.36pts, indicating that funds left the market.

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Index and Market Caps

At the end of Monday’s trading, the composite NGXASI shed 3,329.55 basis points, closing at 102,393.23 after opening at 105,722.78bps, representing a 3.15% decline, just as market capitalization fell by N1.82tr, closing at N56.03tr from the previous day’s N57.85tr, which also represented a 3.15%  depreciation in value.

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The downturn was driven by selloffs and profit taking in the shares of Dangote Cement, MTNN, NB, UBA, Zenith Bank, Dangote Sugar, Flourmill, NEM and Aiico, among others, which impacted negatively on Year-To-Date gain which dropped to 36.94%. Market capitalization YTD gain stood at N14.24tr, representing 36.95% above its opening level for the year.

Bearish Sector Indices

The sectoral performance indexes for the session were in red, led by NGX Industrial goods after losing 6.02% followed by Insurance, Consumer goods, Energy and Banking with 2.49% , 0.77%, 0.28% and 0.26% respectively.

Market breadth was negative with losers outnumbering gains in the ratio of 36:18, while transactions in volume and value were down after investors exchanged 273.85m shares worth N7.44bn. Volume was driven by trades in, GTCO, Transcorp, Acesscorp,FBNH and Zenith Bank.

Juli Pharmacy   and Daarcom were the best performing stocks, gaining 9.52% and 98.64% respectively, closing at N1.61 and N0.88 per share respectively on market forces and sentiment. On the flip side, Dangote Cement and MTNN lost 10%, closing at N686.70 and N247.50 per share, purely on selloffs and profit taking.

Market Outlook

We expect mixed sentiment to continue on profit taking and portfolio repositioning in the face of the fixed income market activities and expected audited corporate earnings.  This is amidst the volatility and upcoming policy meeting, while pullback at this point will 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