Nigeria’s Equity Investors Position For Dividends, Bet On Outcome As MPC Meets After 8 Months

Market Update for the Week Ended February 23 and Outlook for Feb 26-March 1

The last full trading week of February on the Nigerian Exchange witnessed a negative outing, halting the previous weeks’ bullish momentum. This followed profit taking and selloffs that hit major sectors of the market in the midst of a higher yields outlook in the fixed income market, besides the rising inflation, due to FX challenges resulting from imported inflation. The NGX, within the period under review, nevertheless, made yet another new all-time high after breaking out its strong resistance level of 105,740.38 basis points and psychological line of 106,000bps to test 106,087.78bps on a low traded volume and in the face continued portfolio rebalancing and selloffs for safer alternative investment windows, despite the runaway inflation threatening the nation economy and investment world.

According to Nigeria’s National Bureau of Statistics, real GDP growth for Q4 2023 printed at 3.5%, up from 2.5% posted in the previous quarter, boosted by the positive outing of the oil and non-oil sectors for the period. The services sector reported an equally strong performance, especially from the ICT, financial services and others, just as the oil sector reported its first positive reading in 16 quarters thereby supporting economic recovery.

The relative growth in the economy as revealed by the latest GDP figure, despite the rising economic headwinds has supported the hawkish disposition of the CBN to checkmate inflation with a likely increase in benchmark Monetary Policy Rate at its policy meeting on Monday and Tuesday this week.

Meanwhile, portfolio reshuffling continued last week in the face of higher yields outlook in the fixed income market and earnings expectation of companies with December financial year audited accounts. The results are likely to start hitting the NGX any moment from this week after approvals by their board.  These numbers and the outcome of the policy meeting will determine the next direction of the market and the economy in general.

Specifically, the market looks forward to the outcomes of board meetings of MTN Nigeria, Seplat Energy, and United Capital in this week  to approve their audited financials and dividend recommendations to shareholders. Also, all eyes are on the results and corporate action of Africa Prudential any moment from now, following the board’s earlier  approval.

Technically, the nation’s equity market remains at its overbought state on a weekly time frame, amid calls for cautious trading even as sentiment reports for the period reveals selling sentiment of 79%, while MFI and RSI reads 88.32 and 81.75 points respectively, trading above the T-line on a strong momentum. Despite the seeming pullback and the negative breadth for the week, while bargain hunters are trying to take advantage, even as government’s ongoing reforms are yet to put the economy on the path of recovery, or progress due to a mismatch of policies, and even somersault altogether.

The recently reconstituted monetary policy members head into their first  policy meeting under the new CBN governor after eight months of leaving the MPR unchanged at 18.75%, even as the Naira has received severe bashing and continues to depreciate daily in value, just as macroeconomic indices stay mixed. This is amid the hawkish signals from the CBN aimed at attracting foreign investors and checkmating the spiraling inflation. We, however, warn that this will further slowdown the economy as foreign exchange challenges linger in the midst of uncoordinated policies now affecting confidence and sentiment in the system.

Markets across the globe sustained a positive outing on buying intrest in Tech stocks, better than expected macroeconomic in Eurozone and impressive earnings reports especially the numbers from Nvidia and others. As MSCI index  gained 0.8% for the period under review to remain strong.  This trend is likely to continue in the new week, depending on the consumer price index from Europe and purchasing manager index from US.  Also, other factors from Asia domain as rate cut in China continue to influence the stock market positively.

Market players should, therefore, wake up and trade intelligently and smart to avoid being trapped in any position. While this is no joke, it is exciting and scary time on the Exchange at the moment. Now is the time for action, if you must protect your investment, or capital by taking profit and targeting defensive stocks that are stable and established with strong/compact shareholding structures, relatively small outstanding shares, consistent in dividend payment and leaders in their sector or industry.

To navigate the rest of Q1 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 breakout of bullish channel to continue the markup phase. As volume of transaction witnessed within the week remain low traded volume, it is time to go shopping for undervalued stocks, sectors and the next insider dealing opportunity.

Oil price sustain its fluctuation to slow down two weeks gain as it trade at $81.62per barrel following the US inventories uptick on increase oil rig in the face of Fed rate cuts  may take another two months and OPEC’s production unchanged. Major central banks of the world continue to watch the mixed macroeconomic data emanating from different domain amid the lingering tensions in the Middle East and disruption in oil output and demand outlook. Just as Russia-Ukraine war has lingered over two year now, and is indeed escalating. The up and down movement of oil prices also continues to drive volatility across different investment windows.

Movement Of NGXASI

It was a mixed performance and negative outing on the NGX during the week with the index recording three trading sessions of down markets, and two days of up markets to close lower on a low traded volume in the midst of selling sentiments and volatility, as bargain hunters took advantage of pullbacks to reposition in dividend paying stocks ahead of their corporate actions.

Trading activities opened on the downside, halting previous gains after losing  3.15% on Monday. This trend was sustained on Tuesday when the index further pulled back by 1.30%, before rebounding marginally by midweek when it inched up by 0.30%. This was short-lived on Thursday when the composite index fell by 0.12% before rebounding again on  the last trading day of the week with 0.84% as market players digest the  outcome of the fixed income market auction activities and  3.5% GDP figure for Q4 2023. This brought  the week’s  total loss  to 3.44%, compared to the previous week’s 3.79% positive position.

In all these, the NGXASI shed a total of 3,634.48bps closing at 102,088.30bps, compared to the week’s 105,722.78bps opening level, touching an intraweek low of 101,047.68bps from its highs of 106,087.80bps. Market capitalisation also fell  by N1.85tr to N55.90tr representing a 3.44% depreciation in value.

The top gainers table for the week was dominated  by low, medium and highly priced stocks in the midst of selling sentiment and position taking in stocks that had suffered losses in recent time. Also notable was the fact that traders and investors are still trading with caution, as they reducing  their position in some sectors and stocks  ahead of their earnings reports and unfolding events in the monetary and fiscal arena.

Market technicals for the period were negative and mixed as losers outnumbered gainers in the ratio of 66:14 on a selling sentiment as revealed by investdata sentiment report showing  21% ‘buy’ volume and 79% sell position. Money Flow Index was down at 88.32 points  from the previous week’s 92.51 points, an indication that funds left  the market on a weekly time frame.

Technical View

The NGX index’s action pulled back after breaking out the psychological line of 106,000 to test 106,087.80 level to stay on the consolidation range and distribution phase  that ushered in a decline phase once the strong support level of 100,000 is taking off any time, since it had tested these levels of 100,573.40 points and 100,661.00 bps many times. This needs confirmation in the new week. Also, we note that investors are taking long-term positions in the face of pullbacks and volatility.  Amid position taking by dividend investors now increasing their holdings  in the midst of a bearish divergence between money flow and index’s action on a daily time frame.

We note also that sellers are in control, as reflected in the  negative market breadth, even as the index is trading above the 50-Day Moving Average on the weekly time frame.

Mixed Sectoral Indices

The sectoral indexes for the week closed mixed with the NGX Consumer Goods and Energy closed  higher with 2.01% and 0.01% respectively, while the NGX Insurance led the decliners after losing 8.91%  followed by Industrial goods and Banking  with 7.94% and 2.10% respectively.

Activities in volume and value were down as investors exchanged 1.38bn shares worth N31.58bn, compared to previous week’s 1.56bn units valued at N36.50bn. Volume was driven by Financial Services, Conglomerates  and Energy industry. This was boosted specifically by trading in  GTCO, FBN Holdings,Transcorp, UBA and Eterna.

Juli Pharmacy and Sunu Assurance were the  best performing for the week, after gaining  59.18% and  17.42% respectively, and closing at N2.34 and N2.01per share on market sentiments and forces. On the flip side, Morison Industries and Consolidated Hallmark Insurance lost 32.66%and 19.35% respectively, at N1.67 and N1.25 per share, purely on selloffs and profit taking.

Outlook for the week

We expect mixed sentiment to continue as bargain hunters take advantage of pullbacks, amid profit taking, as  dividend players target fundamentally sound stocks ahead of  much awaited Monetary Policy Committee meeting holding this week Monday and Tuesday after eight months of postponement. Investors are watching with rapt attention as the free fall in the value of the Naira has made Nigerian stocks cheaper amid the rising inflation. Also, the market awaits the steps government would take to resolve the country’s lingering FX challenges.

However, retracement to the 100,000bps level and below is possible on profit taking as global and domestic events unfold.

Ambrose Omordion

CRO|Investdata Consulting Ltd

Tel: 08028164085, 08179547605