November Closes 3.06% Up, Amid Mixed Sentiment, Bull-run, As Investors Position For Seasonal Trends

Market Roundup for November
The Nigerian Exchange (NGX) had a bullish, but volatile trading in the month of November, extending the previous month’s bull-run amidst the improved buying interests, even as the benchmark All-Share index witnessed a divergent rally with momentum indicators consolidating in a ranging market to hit a new all-time high in the history of Nigeria stock market. The index tested 71,566.58 basis points on the strength of highly priced stocks and low cap companies hitting new 52-week highs in the face of increasing macroeconomic headwinds, weak economic growth and impressive corporate earnings that had supported prices and buoyed investor confidence in the equity space. This was despite the rising inflation and improved yields in the fixed income market, amid the ongoing seasonality and year-end expectations that have helped the market to sustain a positive sentiment and momentum as revealed by money flow index and high volume traded within the period under review.
Market players saw opportunities in the low priced equities and others on the strength of better than expected numbers from these companies and market sentiments. These numbers are likely to support higher dividend payouts ahead of year-end seasonality. This also followed demand for highly priced stocks that had been flat with little gains before now, especially those in telecommunication, energy and consumer goods. Particularly, there were position taking in the shares of Airtel, Seplat, Nestle, BUA Foods and others, which combined to push the market higher.
Notwithstanding the weak economic data, rising inflation, higher yields in TB and OMO as Central Bank of Nigeria (CBN) plans to mop-up excess liquidity from the system, the better-than-expected 2023Q3 corporate earnings reports and bargain hunting, investors positioned for higher dividend yields in equity assets. The NGX’s benchmark index was up by 3.06% during the month, joining its counterpart across the globe to close November higher, despite the mixed outlook for the world economy in the face of rising geopolitical tension and inflation pointing to rates cut in 2024 after the recent pause of many central banks, as economic data and oil price oscillation remain a major influence.
The positive sentiment and buying interests followed the low price-to-earnings ratio after market players had done their analysis of the nine-month earnings reporting, as traders cashed out profit in the midst of better than expected corporate earnings from quoted companies with December financial year, which supported market fundamentals. Also noteworthy was the negative real rate of returns in the fixed income assets, as headline inflation still pointing northward for the nineteenth successive month, and Monetary Policy Committee (MPC) meeting that was postponed for two consecutive times, even as the apex bank explained that it had met the minimum requirements of the law on the number of times the meeting should hold in a year.
Within the period, the benchmark Monetary Policy Rate remained at 18.75%, even as economic activities pointed to a contraction, judging by the latest Q3 GDP slower growth of 2.54% indicating a further weakening of the economy. The crisis in the exchange market had continued with devaluation of the Naira and imported inflation.
Meanwhile, the month of December, being the last in the quarter and year, will witness mixed trends and new position taking towards the 2023 audited financials expected in the first quarter of 2024, amid year-end window dressing, and the Santa Claus rally, especially the dividend paying stocks. This is as institutional investors try to rotate their positions, considering the fact that the fixed income market tenor and that of equity despite the seeming high yield attractive as a result of expected interest rate hike.
Note that despite the seeming ongoing uncertainty in the economy and oscillating oil price in the international landscape, market fundamentals remain strong as corporate earnings of many companies reveal the possibility of dividend growth. Already, more companies had earlier paid interim dividends this year, a situation that should give investors an insight into what to expect at the end of this financial year.
The nation’s 27.33% inflation rate, 2.54% Q3 GDP slow growth reflect the domestic and global challenges and impact of policy mismatch between the fiscal and monetary authorities, just as the Purchasing Managers’ Index (PMI) was below 50 points at 49.1points in October, as against 51.1 points in September. Also noteworthy is the fact that insecurity and flood had affected farmers, despite the ongoing harvest season that reflected slightly in the latest inflation figure.
The strong earnings of many companies and bright prospects of some sectors have showed the grossly undervalued state of Nigerian stocks, even as the relative subsisting high inflation rate and negative real return in fixed income market supports the equity market. These are despite the low inflow from foreign investors and exchange market problems as the Central Bank of Nigeria moves to address foreign exchange flows and supply.
We believe effective coordination will reduce policy mismatch and summersaults, while promoting a realistic economic reforms, structural adjustments, effective disbursement of capital project funds and real change in the implementation style of the government. These are necessary to hasten economic recovery by enhancing productivity and national output needed to support growth.
The seeming uptrend and buying interest noticed in November was obvious in the 22 trading sessions of the month, during which the market closed positive in 17 and was down in just five days, extending the previous month’s gain. It also boosted the year-to-date position, lifting the NGXASI to 39.25%, owing to buying interests in high cap stocks, positive reactions to earnings and sentiment to the equities. Despite the economic challenges, high yield in fixed income space and others, many stocks remain attractive, offering high margins of safety and upside potentials.
Meanwhile, during the month under review, the NGXASI gained 2,129.79 basis points, closing at 71,365.98bps, after touching a high of 71,566.58bps and a low of 69,222.13bps, from the 69,236.19bps it opened for the month. This came with a positive sentiment that impacted prices of high cap stocks, thereby supporting the uptrend witnessed during the month especially the, energy, insurance, banking and telecoms stocks that appreciated in prices.
The buying volume of total transactions for the month was 95%, while selling position was 5%, and volume index for the period was 1.47; just as market capitalisation for the month gained N1.01 trillion, closing at N39.05tr, from an opening value of N38.04trillion, representing a 2.66% appreciation in investors’ portfolios. This different in index gain was as a result of delisted companies like Union Bank of Nigeria, Courtville Business Solution and others.
The market sustained a positive sentiment and uptrend for stocks, especially with strong company fundamentals and growth prospects, expectation of seasonal trends and investors positioning in stocks that have strong yields to hedge against inflation, even in the midst of Naira depreciation against other currencies.
Traded volume for the month was up by 51.13% to 10.67bn shares, from 7.06bn units in October, even as market breadth was decent, with advancers outnumbering decliners in the ratio of 65:32. This reflected on the major sectorial indices that closed higher for the period under review.
The sectoral performance indexes closed mixed as shown below, with the NGX Energy, Insurance, Main Broad, Banking and NGX 30 driving the market, after gaining 11.85%, 10.77%, 7%, 5.4%and 4.83% respectively. The oil and gas sector broke out during the period, impacting the market positively, a situation expected to continue in the new month, given the sector’s acquisition of assets to boost capacity and expansion. The industrial goods led the decliners after losing 1.84%, followed by Consumers goods with 0.65%.

November’s best performing stocks were Deap Capital, which gained 136% on market sentiment; followed by NSL Tech on market forces and sentiment after its share price appreciated by 124.14%. Next was NNFM that gained 93.91%. Among the month’s top gainers were: Multiverse, 86.87%; Omatek 57.78%; C/I Leasing, 54.41%; Japaul Gold, 52.78%; and Unity Bank, 47.37%.

Source: Investdata Research

The worst performing stocks, on the other hand, were Thomas Wyatt, which lost 43.42% of its opening price for the month; while Ellah Lakes shed 17.83% on unimpressive Q3 earnings performance; Stanbic IBTC, 16.15%; and TIP, 14.66%. Etranzact shed 13.13% due to market forces/profit taking, just as Beta Glass lost 11.28%; followed by Eterna, 11.03%; and Redstar Express, 10.30% on the back of profit taking.

Worst Performing Stocks in November 2023

Source: Investdata Research

Technical Analysis of November market

Bargain hunting and positive sentiments have pushed the market into an uptrend and bull rally, as seen in the NGX composite index which broke out various resistance levels and psychological lines of 70,000 to 71,000 level, after touching strong support level of 69,121 .70. It trades above the T line and 200 day moving average on a high traded volume to remain in a bullish channel on a monthly time-frame. This clearly signals of an impending price rally, or profit taking. The divergence in a shorter time frame indicates pullback and correction are underway to give the expected rally in the new month more strength.
The ascending triangle chart pattern also supports continuation of current trend or pullback depending on market forces and news in December. Investors and traders should trade cautiously throughout the new month and beyond, by having good entry and exit strategies at all time.
Market Outlook
We expect a mixed sentiment and bull run, as market players interpret happenings globally, fixed income yield environment, CBN policy outlook, earnings report and weak economic data, coupled with portfolio repositioning ahead of the December seasonal trends and expectations in the midst financial market reset. This is given that oil price in the international market has continued to oscillates and smart money are trying to rotate their positions as dividend growth possibility and upside potential of undervalue stocks make the market attractive at this point.
Meanwhile, given the recent bull-run, profit taking and correction are evitable, being a regular behaviour of stock markets. Any price correction at this phase of market rally will support the upside potentials. This is especially as many fundamentally sound stocks remain underpriced, while the dividend yields of major blue-chips continue to look attractive, despite the recent rally.
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