Portfolio Rebalancing, Dividend Hunt Intensify On NGX Amid Full-Year Earnings Expectations

Market Update for December   19

Santa Claus rally continued on a soft momentum on the Nigerian Exchange in the midst of seasonality and ongoing portfolio rebalancing as trading for the year 2023 winds down gradually to usher in the 2024 now loading. This comes with challenges and opportunities of the global and domestic financial market reset in the face of rising geopolitical tension, as well as the recent reforms by way of fiscal and monetary policies that have positive or negative impacts on the economy as being witnessed already.

The benchmark NGX All-Share index closed marginally higher, extending the bull run for a second consecutive session on a less than average traded volume and positive market breadth ahead of the Christmas holidays and year-end window dressing. The buying sentiment on Tuesday reflected position taking across some major sectors of the market in midst profit booking and bargain hunting for banking stocks, on the strength of the sector’s consistency in dividend payment. This is expected based on numbers released so far in this year that support a higher payout, despite the proposed recapitalization in the banking industry.

Cautious trading and mixed outlook continued in the fixed income market, as all eyes are on the outcome of today TB primary market auction in midst of rising inflation and decline in the last auction rates/yields across all tenors in the face of economic headwinds and real negative returns in the fixed income assets or instruments.  Institutional players are holding their position in the equity space and gradually increasing and accumulating position ahead of year-end. Such situation had relatively supported this ongoing uptrend on NGX. Already, the Q3 corporate earnings of listed companies, especially the services providers have signaled the possibility of high dividend payment alongside capital gains on a shorter time frame as investors seek to hedge against the raging hyperinflation.

The NGX index action continued to trade above the 72,000 basis points mark and T-line, to extend the uptrend after forming a bullish hammer on Monday. It had tested Tuesday’s high of 72,489.21bps before closing lower on a buying sentiment and positive money flow indices that revealed funds entering the market. At this point, let your technical analysis continued to guide you at all time. Market players are expected to take advantage of any moves in the market to create more wealth by taking the right decision at the right time. Despite, the current disconnection of the stock market from economic reality of the country, which remains a concern for investing public.

The positive market metrics supported the uptrend on the NGX as momentum indicators signal recovery, while MACD moved with index action indicating bull divergence on low traded volume and buying sentiment. Meanwhile the dividend paying period in the market draws even closer. A glimpse into what we should expect at year-end has been provided by the unaudited Q3 corporate earnings reports released by listed companies.

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Oil price oscillation continued at the international market, as it rebounded to trade at $79.12 per barrel in the midst of the Red Sea attack now affecting supply, as well as the high US inventory that are set to weigh down on price during holidays. Even as the Middle East conflict is taking another dimension amid calls for another ceasefire, while the three major central banks left rates unchanged due to cooling inflation and outlook of rates cut in 2024. The influence of demand and supply oil are worsened by the geopolitical tensions rising across the globe at a time the Russia-Ukraine war gradually approaches its third year. The war remains a major cause for concern with much more at stake than previously thought. The supply tightening due to the Russia-Ukraine war will propel the up and down movement in oil price, which also drive market volatility across the globe.

Tuesday’s trading started in the green and it was sustained for the rest of the session, despite oscillating on position taking in banking stocks and other blue-chips, while there were pockets of profit taking in some stocks. This situation pushed the Index to an intraday high of 72,489.21bps from its lows of 72,320.32 points, before closing marginally above its opening level at 72,470.10bps.

Market technicals were positive and strong with a higher volume traded, when compared to the previous session, in the midst of breadth favouring the bulls on a buying sentiment as revealed by Investdata’s Sentiments Report showing 89% buy position and 11% sell volume. The total transaction volume index stood at 0.90 points, just as the impetus behind the day’s performance was strong, with Money Flow Index looking up to read 72.75pts, from the previous day’s 72.49pts, indicating that funds entered the market.

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Index and Market Caps

The composite NGX All-Share Index,  at the close of the day trading inched up by 65.19bps, closing at 72,470.10bps, from the opening of 72,404.91bps which represented 0.09% up. Market capitalization rose by N35.67bn, closing at N39.66tr, from the previous day’s N39.62tr, which also represented a 0.09% appreciation in value.

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Meanwhile, the upturn was driven by buying interests in the shares of MTNN, GTCO, UBA, Accesscorp, Oando, PZ, Wapco, Caverton and Infinity Trust Mortgage Bank, among others. This impacted mildly on Year-To-Date gain, that inched up to 41.40%, while Market Capitalization YTD gain stood at N11.76tr, representing a 41.78% rise above its opening level for the year.

Bullish Sector Indices

Sectoral performance indexes were up, save for the NGX Consumer Goods that closed lower by 0.22%, while the NGX Banking led the advancers after gaining 1.89%, followed by Insurance and Industrial goods with 0.40%and 0.22% respectively. Just as NGX Oil/Gas finished flat.

Market breadth turned positive as gainers outnumbered losers in the ratio of 35:13, while transactions in volume and value terms were up, after players exchanged 411.21m shares worth N6.95bn, driven by trades in UBA, Veritas Kapital, Accesscorp, FCMB and Transcorp.

Caverton and Infinity Trust Mortgage Bank were the best performing stocks, gaining 10% each and closing at N1.76 per and N3.41 share respectively, on market sentiment and forces. On the flip side, Omatek and Prestige Assurance lost 10% and 9.62%, closing at N0.63 and N0.47 per share, purely on the back of profit taking.

Market Outlook

We expect positive sentiments and profit taking to continue on bargain hunting for dividend paying stocks ahead of Christmas holidays in the midst of sector rotation and portfolio rebalancing on the strength of the better-than-expected corporate numbers released and high yields. However, we note that 2024 is beginning dividend season ahead.

Meanwhile, all eyes are on the fiscal and monetary authorities to give direction of the government reforms and policies so far.

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