NGX’s Bearish Momentum Slows Down Ahead Of MPC Meeting, As Inflation Rages On

Market Update for the Week Ended May 17 and Outlook for May  20-24

The bear-run on the Nigerian Exchange slowed down  in the week under review on the back of mixed sentiments, as investors took advantage of the resultant pullbacks to buy into value. There are some players still selling to reposition their portfolios and take advantage of the prevailing higher fixed income market yields and mixed corporate earnings. This has become necessary given the runaway inflation and gloomy economic condition that reflects the impact of the ongoing economic reforms by the government.

The National Bureau of Statistics (NBS) recently released Nigeria’s Consumer Price Index (CPI) for April showing showing that the inflationary pressure lingered within the period, hitting yet another new all-time high of 33.69% from the previous month’s 33.27% year-on-year. The latest inflation data has, therefore, thrown the benchmark NGX All-Share Index return year-to-date into negative, made worse by the prevailing high interest rate> It is notworthy that the fixed income market yields continue to attract inflows from foreign retail and institutional investors, especially into Treasury Bills and the open market operation, among others.

The month of May has so far witnessed selling sentiment, extending bearish momentum of April that follows the 600 basic points rate hike by the Central Bank of Nigeria (CBN) to checkmate inflation, that has continued to hit new all time highs. The latest inflation report signals the possibility of yet another hike in rate as the CBN’s Monetary Policy Committee (MPC) begins its meeting on Monday. However, Investdata analysts do not expect the hike to be as steep as the earlier 400 and 200 points in February and March  respectively. The possibility of leaving it unchanged at 24.75% is slim.

We note that rate hikes at any time in any market phase is a minus for the equity prices. As such, sector rotation and portfolio rebalancing will continue for as long as market fundamentals and dynamics continue changing. The  first  GDP report for the year 2024 is still being awaited. The report would have broadened discussions at the two-day MPC as it opens, giving an insight into how the economy has fared in the first three months of the year.

On the strength of  economic and company numbers  available in the public domain, while investors position for dividend income, especially those with qualification and payment dates in May, we expect positive sentiments to show up in the coming days and weeks.

However, the shares of service providers remain attractive at current market value. For example, banking stocks remain attractive at their current prices, despite the ongoing recapitalization moves that would further enhance their inter-mediation, while better competing in the global space.

The changing market sentiments and dynamics ahead of more expected corporate  earnings and key macroeconomic data are likely to give investors an insight into what should be expected from different sectors of the market. These numbers will reveal the strength and upside potentials across sectors, industries and companies on the exchange. Other factors include the rising economic headwinds resulting from the ongoing fiscal reforms, foreign exchange market hiccups and the raging insecurity across the country, all of which remain major sources of concern for  local and international investors. The situation is made worse by the resultant soaring inflation that has now galloped into a new all time high.

The NGXASI resisted further decline last week, closing flat in the period under review, thereby forming a bullish hammer reversal chart pattern on a low traded volume, signaling the possible of an uptrend that needs confirmation in the new week. Market participants are expected to use the impressive earnings performance of some companies and other strategies to navigate this volatile market through  portfolio diversification to hedge against the rising inflation and market downturn. This is just as traders are exploring avenues to mitigate the impact of higher yields in the alternative investment window, by taking advantage of low valuation at the current market condition to position in the right stocks at the right time.

Technically, the market remains  relatively strong on the weekly chart, while at the oversold region on a daily time frame. Sentiment report for the week revealed buying  sentiment of 90% and MFI reads 36.08 points looking up on a weekly time frame. Trading below T line on a weekly chart and flat on daily chart  to reflect  gradual return of strength to the market as momentum is improving. The flat market  in the midst  negative market internals and low volume transaction, reveraled wait and see, as some are positioning  in dividend paying stocks, especially  bargain hunters, as the  pullbacks create new  buying opportunities  into quality companies with high yield, strong earnings power and  low valuation.

The global stock markets closed higher on positive macroeconomic data and government intervention in China economy to boost performance, as inflation resurfaced after witnessing deflation. Its first tranche of 1.0 trillion yuan, long-dated stimulus bond sales targeted to reflate its battered real estate market. Also, cooling US inflation rate, as it reads 0.3% on a month to month against the projected 0.4%, even as it printed  at 3.4% on yearly basis lower than 3.5% in the previous month. On this note, MSCI  World index advanced by 1.5% for the week.  In the new week,  we expect a mixed market to be shaped  by  timing of rate cuts and  inflation report from Eurozone, as well as other domain.

To navigate the rest of Q2 market volatility and its mixed outlook profitably using fundamental and technical analyses to run, join Investdata’s Live Sessions at noon every Mondays, Wednesdays and Fridays, also get investdata Technical Toolbox to play the current state of the market do suggest that discerning investors are gradually becoming greedy, while others are fearful, as seen in the recent corrections and pullbacks to continue the markdown phase. As volume of transaction witnessed within the week remain low, it is time to go shopping for undervalued stocks, sector rotation and the next insider dealing opportunity.

Oil price during week oscillated to recorded weekly gain, as it trade at $83.56per barrel following the  cooling US inflation, declining inventories and increased Chinese stimulus, which boosted hopes for improved global demand.  As rising geopolitical tensions threats supply, coupled with war in Ukraine and Russia disrupting  in oil output in the face of oscilating price. The up and down movement of oil price has continues to drive volatility across different investment windows and inflation again.


Movement Of NGXASI


The NGX recorded another bearish performance for the period, with the composite NGX All-Share index closing red for four trading  sessions and green just once, as positioning in highly priced stocks  and profit booking dominated trades in the face of price adjustment for dividend recommended by directors  and portfolio rebalancing.

The following companies: Abbey Mortgage Bank, NAHCO, UBA, FCMB and Presco were marked down for the dividends of 4 kobo, N2.54, N2.30, 50 kobo and N24.30 respectively proposed by their directors. The price of Champion Breweries was adjusted  for the bonus share of one-for-every seven held, while Jaiz Bank proposed a dividend of 4 kobo for its shareholders for 2023 financial year.

The week’s trading opened  in the downside, extending the previous loss with the index shedding 0.53% on Monday, a trend that was sustained on Tuesday and midweek as the market closed 0.24% and 0.13% lower respectively on the back of selloffs and profit taking. The index rebounded sharply on Thursday when it gained 0.84% on position taking in Airtel and others, a situation that was short lived  when the index slipped by a marginal 0.03% Friday on a mixed sentiment. This brought  the week total loss to 0.11%, compared to the previous week’s 1.36% decline.

Consequently, the benchmark index fell by 108.03bps, closing at 98,125.73bps, from previous week’s 98,233.76bps, after touching an intra-week low of 96,961.30bps from a highs of 98,261.50bps. Market capitalisation also fell by  N0.8bn to N55.5tr, representing a 0.10% value loss.

The top advancers’ table  for the week was dominated by medium and low cap stocks in the midst of profit taking  and buying interest, even as less stocks appreciated in value during the period. Also notable was the fact that market players are still trading with caution, even when taking position and carrying out sector rotations ahead of more earnings reports and unfolding events in the government reform process.

Market technicals for the period were negative and mixed as losers  outnumbered gainers in the ratio of 51:28 on a buying sentiment as revealed by investdata Sentiment Report showing 90% ‘buy’ volume and  10% sell position. Money Flow Index was up at 36.08points from the previous week’s 34.61 points, an indication that funds entered the market on a weekly time frame.


Technical View

The NGX index’s action formed a bullish hammer reversal chart pattern that signaled uptrend underway, which needs to be confirmed in the new week, as more financial reports are expected to hit the market and  change momentum, especially from the insurance companies and march year end accounts. The buying  sentiment for the period in the face of low valuation and mixed corporate earnings, even when higher yields in the alternative market still remain below inflation rate and NGX.

Already, the index  has entered a decline phase on a weekly time frame and ranging in daily chart. We note that the 96,961.30bps is a strong support level on the daily and weekly time frame, even as the index on the weekly time frame is  resisting decline. The market is at a critical zone as all eyes are on the more financials  to support market fundamentals and attract inflow again. Also, we note that investors are taking long-term positions in the face of dividend expectations and volatility.

We also note that buyer are in control, as revealed by the  buying sentiment in the face of negative market breadth, as the index is trading below the T line and  above 50-Day Moving Average on the weekly chart.

Bearish Sectoral Indices

The sectoral indexes of the week closed in red, save for the NGX Industrial Goods that  closed 0.01%  slightly higher, while the NGX Energy index led the decliners after losing 6.49%, followed by  Banking ,Insurance and Consumer goods with 5.31% 3.98%  and 1.29% respectively.

Activities in volume and value fell as investors and traders exchanged 1.65bn shares worth N42.68bn, compared to previous week’s 2.19bn units valued at N50.67bn. Volume was driven by Financial Services, Conglomerates and Consumer goods  industry,  boosted specifically by Custodian Investment, GTCO, Accesscorp, NB and Transcorp.

IEI  and McNichols  were the best performing stocks for the week, after gaining 11.49% and  9.89% respectively, closing at N1.65 and N1.00 per share on market forces and  sentiment. On the flip side, PZ  and NEM  lost 22.16% and 18.36% respectively, at N21.60 and N8.45per share, on  selloffs.


Outlook for the week

We expect the mixed sentiment to continue, as investors bet on the next MPC meeting outcome in the face of portfolio rebalancing and expected  Q1 GDP reports, despite the rising inflation. Bargain hunters are also expected to take advantage of pullbacks to buy into  value and dividend stocks. As investors are watching with rapt attention.

However, retracement to the 94,000bps level and below is possible on correction as global and domestic events unfold.


Ambrose Omordion

CRO|Investdata Consulting Ltd

Tel: 08028164085, 08179547605