Nigerian Equity Investors Await Policy Meeting Outcome, As Inflation Nears 2005 Historic Peak

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

Nigeria’s equity market extended it bullish momentum in the midst of higher yields in the fixed income market and rising inflation as revealed by the latest inflation data October with a nine-month peak of 27.33%. The Consumer Price Index which rose from the 26.72% recorded in September further threw the economy into a weaker position, reflecting the impact of the mismatch of policies announced by the fiscal and monetary authorities.
The impact of subsidy removal and the unification of exchange rates have combined to pile pressure on prices in the domestic economy, due to imported inflation arising from the bloating exchange rate, high cost of transport and raw materials for production. Coupled with the sustained insecurity that has forced farmers to stay away from their farms due to kidnapping and banditry, following which the current harvest season is not impacting prices . The resultant hyperinflation has sustained negative real rate of return across many investment windows, despite the recent spike in the money and bond market yields.
We note that unless something is done quickly to stem the tide soon, Nigeria’s inflation is already within the fringe of its 28.2% historic high recorded in August 2005.
Funds continued to flow into the equity space, with the NGX index’s action making new all-time high, as a result of ongoing portfolio rebalancing to hedge against inflation, on the strength of impressive corporate earnings ahead of year-end and Q4 seasonality. These impacted stock prices across the large cap, low priced and blue chip companies, which also reflected on the volume of transaction and positive market breathe for the week. All attention has shift to Q3 GDP figures and outcome of next week Monday and Tuesday MPC meeting which would help investors navigate the volatile market environment.
Since monetary policy and central bank’s decisions drive interest rates and yields in any economy, focusing on the circular flow of funds is very important. The issues that should agitate the mind of every investor at this time are: where liquidity is moving to on the back of the impressive Q3 earnings, effects of untamed inflation, a weakening economic growth and the impact of the sustained Naira devaluation on a daily basis.
It is gladdening to note, however, that the Central Bank of Nigeria (CBN) is making moves to settle the backlog of FX obligations and the relative improvement in supply at the foreign exchange market. This situation will help reduce pressure, amidst the ongoing volatility in that segment of the financial market. The outcome of the policy meeting will determine the level of funds that will flow in and out of the stock market, knowing that rate hike in any market of the world is a minus for equity players.
The NGX remained above the T-line and 71,000 psychological line on a daily, weekly and monthly charts but below the upper trend line of a bullish channel amid buying interests in highly priced stocks and blue-chip companies, which pushed the indicators higher in the midst of continued oscillation in transaction volume pattern. This further confirms accumulation as market players digest the recent inflation data and reposition their portfolios in the new week. As all eyes are on the coming MPC meeting. The seeming improvement in volume of transaction in the market is also an indication that smart money can mark-up the price at any time and without notice. These, notwithstanding, we urge investors to wait for confirmation of the trend, with bargain hunters already taking advantage of the low valuation and in the midst of markup and profit taking.
Nevertheless, market volatility continues to support technical traders in the midst of prevailing buying interest and mixed sentiments, resulting from portfolio rebalancing and sector rotation in the face of the escalating war in the Middle East, declining oil price in the international market and the better than expected earnings that signals the possibility of higher payouts at year-end. This is especially true of companies whose share price had pulled back in the midst of the strong numbers posted, which reveal their undervalued state. This can be seen in the high dividend yields that point to the possibility of bargain hunters taking position to hedge against market downturn.
To navigate the rest of the year market volatility and its mixed outlook profitably using fundamental and technical analysis to run, join investdata live sessions at noon every trading day “and 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 breakout of consolidation. As volume of transaction witnessed within the week remain above the average traded volume, it is time to go shopping for undervalued stocks, sectors and the next insider dealing opportunity.
Oil price during the week under review oscillated to heading for one-month decline as it trades at $80.61 per barrel in the midst of the ongoing middle east conflict and OPEC considering additional 1 million bpd output cut. Just as global demand outlook remains mixed, despite the seeming cooling inflation. We note also the rising geopolitical tensions across the globe and supply disruptions longer, due to the Russia-Ukraine war that has lingered for more than a year, and is indeed escalating. The up and down movement of oil prices also continues to drive volatility across different investment windows.

Movement Of NGXASI
The NGX All-Share index recorded four trading sessions of up market and was down once, following which the index closed higher, extending the bullish momentum for the fourth straight week. This occurred on the back of mixed sentiment as reflected on some of the major sectors of the market, which some of the indexes moved northward due to buying interest in the midst of portfolio repositioning and profit taking.
Specifically, trading for the period opened on negative note, halting the previous gains with 0.33% loss, but was reversed on Tuesday as the index gained 0.37%. this trend was sustained at midweek and for the rest of the week with the market index looking up by 0.25%, 0.02% and 0.12% respectively, to cross the 71,000 mark, despite the price adjustment of Seplat, Presco and Okomu for interim dividend of N29.90, N2.00 and N4.00 respectively. The week’s accumulated gain to 0.37%, compared to the previous week’s 0.93% positive position.
Consequently, the NGX All-Share index gained 263.61 basis points, closing at 71,112.99bps, compared to the week’s 70,849.38bps opening level, after touching an intra-week high of 71,169.70bps and a low of 70,609.14bps. Market capitalisation also rose by N182.9 billion to N39.1 trillion representing a 0.37% value gain for the period.
The week’s top advancers’ table was dominated by low and medium cap stocks amid the buying interest in highly priced stocks Seplat and Okomu in the face of high volatility. Also notable is the fact that investors are taking advantage of the price oscillation and low valuation to buy into value and high dividend yield companies.
Trade metrics for the period was positive as gainers outnumbered losers in the ratio of 54:30 on buying sentiments as revealed by investdata sentiment report showing 89% ‘buy’ volume and 11% sell position. Money Flow Index was looking flat at 80.18bps from the previous week’s 80.13 points, an indication that funds entered the market on a weekly time frame.

Technical View
The NGX index’s action broke out the psychological line 0f 71,000 and resistance level of 71,136.14 on a markup phase on the weekly chart with above average traded volume signaling positioning of smart money in the market now, while position trading is ongoing by investors, as the market trades above the T line on a daily, weekly and monthly time frame to sustained its uptrend in the midst of positive sentiment and buying momentum. We note also that the index is trading above the 200-day moving average on the weekly time frame.

Mixed Sectoral Indices
The sectorial performance indexes were mixed, with the NGX Industrial Goods and Banking close lower by 1.18% and 0.04% respectively, while the NGX Energy led the advancers’ after gaining 2.61%, followed by Insurance and Consumer goods with 0.91% and 0.24% respectively.
Activities in volume and value were down, as investors exchanged 2.03bn shares worth N27.69bn, compared to the previous week’s 2.53bn units valued at N45.30bn. Volume was driven by Financial Services, Oil/Gas and Services Industry. The was boosted specifically by trading in Japaul Gold, Fidelity Bank, Jaiz Bank, Oando and C/I Leasing.
Deap Capital and C & I Leasing were the best performing stocks for the week, gaining 54.84% and 49.55% respectively, and closing at N0.48 and N4.98 per share on market sentiments and bonus share. On the flip side, Japaul Gold and Beta Glass lost 14.14%and 9.92% respectively, at N1.70 and N54.00 per share, purely on profit taking.

Outlook for the week
We expect mixed sentiment and marginal gains, as investors bet on possible outcome of the policy meeting slated for Monday and Tuesday, as portfolio rebalancing continues on high inflation and strong corporate earnings. Also, the market awaits the moves of the government to resolve FX shortage in the exchange market, even as all eyes are on the apex bank and Ministers to rollout a national economic agenda.
However, retracement to the 68,559.46bps level and below is possible on profit taking as global and domestic events unfold.

Ambrose Omordion
CRO|Investdata Consulting Ltd
Tel: 08028164085, 08179547605