Nigeria’s NGXASI Sheds 6% In April, As Banking Stocks Drag Amid Recapitalisation Worries, Investors Bet On Economic Data

Market Roundup for April 2024

Trading on the Nigerian Exchange closed positively on Tuesday, but the gain was not significant enough to prevent the NGX All-Share Index from closing bearish in the month of April, thereby halting the rebound and recovering witnessed in March. The decline was not unexpected, given the spate of profit taking, and selling sentiments despite being the earnings reporting season.

The corrective wave and pullbacks followed the changing market and economic fundamentals, coupled with mixed reactions to corporate earnings and actions released during the period. Just as higher yields in the fixed income market remain a minus for the stock market, despite the prevailing runaway inflation in the midst of influx of Q1 numbers which are mixed in performance to guide market player’s decision for the rest of the quarter and beyond.

Data mined over a 27-year period, according to Investdata Research findings, shows that transactions on the Exchange have often times closed negative in the month of April. It further revealed that the month of April and, indeed Q2 over the years, have been a period of position-taking on the Nigerian equities market, closing red in 14 of the 27 year, and up was up in the other 13.

Meanwhile, the outpouring of Q1 financials, a few second and third quarter numbers, coupled with unaudited full-year March accounts are yet to impact or reflect on the market during the period, despite the prevailing value on the NGX as a result of relative low prices. We note the increasing economic headwinds and uncertainties arising from government reform policies and implementation style, as well as policy summersaults here and there. Meanwhile, economic indicators are revealing a contracting economy due to the high interest rate regime, made worse by the impact of inflation at its peak, and even the declining output/productivity.

The candlestick pattern that represents the month’s trading activities fully consumed the pattern in the month of March, while technically forming a bearish engulfing candle that supports either a downtrend or continuation of trend. This is therefore signaling the beginning of a downturn or reversal in the new month, depending on market forces and outcome of central Bank of Nigeria monetary policy meeting slated for May 20-21. 2024.

Combining these facts with the current situation in the market, we conclude that the market has a mixed possibility of rallying in the month of May, as long-tenored high Treasury bill rates and bond yields remain threats to equity prices. The expected investors’ reaction to the first quarter numbers recently released and the qualification dates for dividends will determine how far the market will go in this new month.

Nevertheless, we note that economic fundamentals are still weak and mixed, as all eyes are on such data as the Q1 GDP report, April inflation, Purchasing Managers’ Index, and indeed, the global trend, geopolitical tensions and Fx market challenges that had lingered, given the new realities, will go a long way in influencing market performance. We expect a significant negative adjustment in food inflation, especially with the rising insecurity challenges that have driven farmers off their farms and businesses.

Meanwhile, the NGX recorded 18 trading sessions during the month under review, closing lower with the composite NGX All-Share index oscillating, as the benchmark index closing south on 14 trading days, and north in four sessions. The benchmark index shed 6,336.47 basis points, closing at 98,225.63bp after breaking down various psychological lines and tested 97,734.56pints a strong support level, from its 104,562.10bp opening level, representing 6.06% decline for the month.

The sell volume of total transactions for the month was 93%, halting the previous month’s up market, as volume index for the period stood at 1.06, while market capitalisation fell by N3.57tr to N55.55tr, from an opening value of N59.12tr, representing 6.04% value loss. The market had negative sentiments and mixed reactions to the audited financials corporate action dates and Q1 scorecards that were mixed, some numbers beat investors and analysts’ estimates, while others were below market expectations. The month’s traded volume was marginally up by 9.63% at 8.54bn shares from 7.79bn units in the previous month. The NGX All-Share index’s year-to-date gain position stood at 31.36%, just as market capitalisation rose by to N11.23tr representing 35.77% gain YTD from the opening value.

Market breadth for April was negative as losers outpaced gainers in the ratio of 79:22 to short-lived the bull transition, reflecting the weak economic data, selling sentiments and the influx of first quarter earnings reports that hit the market. The earnings reports recorded mixed performance, while numbers from these sectors banking, Agro-Business, Utilities, Aviation service providers, others financials, Energy and Healthcare, some publishing and industrial goods. Selloffs across the major sectorial indexes since the announcement of banks recapitalization weighed on the market as revealed by the performing sectors chart for April.

The sectoral performance chart below shows that banking stocks dragged the market the most in the period under review, after losing 24.79%, compared to 6.06% decline recorded by the benchmark NGX All Share Index. It was followed by the NGX Insurance which fell by 6.49%, reflecting profit taking and delay in releasing their financials, while others closed lower for the period. This was attributed to the higher rates and yields in fixed income market instruments and sector rotation, amidst the relatively low Price-To-Earnings attraction in the market.

Best Performing Stocks for April

The month’s best performer was Morison Industry, which is one of the major low price stocks benefiting from market sentiment, small outstanding number of shares and strong shareholding structure. It closed the month better by gaining a significant 130.11% of its opening price for the month. It was followed by Cutix, which chalked 19.23%; while CAP chalked 19.17%; and Nahco, 13.44%. Low and medium cap companies dominated the top gainers for the month included: Ikeja Hotel 12.91%; Linkage Assurance, 10.47%; among others.

Worst Performing Stocks for April

The top losers table was led by GTCO, which shed 37.71%, on the back of profit taking and price adjustment for N2.70 dividend. Market forces and the mixed sentiment dragged FBNH down by 32.77%; while CWG declined by 32.67%; Accesscorp, 31.22%; and Zenith Bank, 27.87% on the back of profit taking and markdown for dividend, apart from FBNH that is yet to release it audited full year 2023 result. 

Technical View on Monthly Time Frame

NGX index’s action witnessed a pullback and correction as a result of profit taking and selling sentiment. Technically April has formed a bearish engulfing candlestick that revealed that sellers are in charge, which support downtrend depending on market forces in the new month. The expected market reaction and portfolio rebalancing in May on the strength of the mixed  Q1 financials released so far which likely to continue after the holiday declared by the Nigerian government for the international Labour Day.  The inflow of funds to equity assets at this oversold zone as signaled by money flow index could support the bull-run as smart money reposition their portfolios.

Where To Invest And Expectations For the Rest of Q2

The global economy and markets remain mixed and dicey as changing global trends and geopolitical tensions threats recovery across climates, with the World Bank recently upgrading its economic growth outlook, despite the Middle East crisis, war in Russia and Ukraine, rising commodities prices and mixed inflation outlook across the globe.

Back home, economic headwinds and mixed indicators are likely to continue in the new month as we expect more economic data and the events to confirm the real state of the nation’s economy as implementation of the 2023 and 2024 national budget continues. The hyperinflation and lingering exchange market problem, despite CBN’s intervention by supplying BDC dollars, as production cost remain high, unemployment on the rise and impact of high energy cost and insecurity in the system.

In May, we expect the release of April consumer price index (CPI) by the National Bureau of Statistics (NBS) that would show by how much the ongoing realities in the country are feeding into the inflation numbers. Also, the CBN’s Purchasing Managers Index (PMI) for April is expected in this month, and the GDP data much later in the month, to confirm the true state of the economy.

With the corporate earnings reporting season extended to May and June for the few March year-end accounts, the fundamentals of these earnings and dividend declaration will shape the market. Also, we note that many high cap stocks have this month as their qualification and mark down dates, a situation that will keep the market oscillating and at the same support recovery.

Traders and investors who understand the importance of combining fundaments and technical analysis in making investment decisions in the stock market should take this opportunity to position in some sectors for medium and long term gains, especially the agribusiness, insurance, utilities and service providers  after a carefully study of recently released numbers to the market.

What to expect in May and June

  • Release of few outstanding quarterly and full-year earnings, while those from blue-chip companies may strengthen market fundamentals in May.
  • Continuation of the oscillating trend of equity prices as a result of repositioning of portfolio along the line of positive numbers and profit taking. Also the second half of this year will likely be dominated by mixed sentiment.
  • Market outlook for May is mixed and dicey, in line with popular saying that traders always “sell in May and come back in October,” which may not be applicable in the current trend of our market that has changed. In the Nigerian market, the month of May has closed positively in 17 times over the 26 years. But with the mixed Q1 numbers so far; the oil price oscillating above $87 per barrel in the global market and the CBN intervening in the FX market to create stability.
  • The sustained low valuation in the market may trigger high demand for stocks as players realign their portfolios to hedge against the rising inflation. However, there is need to invest wisely, using bids, offers and volume when taking decisions as a trader.
  • Managing risks and protecting capital at this point is very important, which is why you must determine when to buy or sell, by watching the stocks and the market, using technical analysis and stop loss at any time. Look for investdata daily sentiment report and home study video packs to up your investing and trading education.
  • Let numbers released by the companies guide your decisions and time to stay in any particular position.
  • Full-year earnings reports of March year-end companies will start hitting the market this month until June.

As the market extend its markdown phase in attempt to recover, it is time to combine fundamentals and technical tools to take decision by knowing the support and resistant levels to reposition or exit any position. You must know the cycle it, or particular stocks therein are to successfully manage your trading and investment risk. For stocks that should be on your watchlist to buy in these seasonal changes as the year unfolds, sign up to INVESTDATA BUY AND SELL signal setup by calling 08179547605.

Ambrose Omordion

CRO|Investdata Consulting Ltd

Tel: 08028164085, 08179547605