Portfolio Rebalancing May Persist, On Earnings Inflow, Higher Fixed Income Yields, Rising Inflation

Market Update for the Week Ended April 5 and Outlook for April 8-12

It was another negative outing  on the Nigerian Exchange as the new month and quarter started last week, halting the bullish performance seen in Q1, extending  three consecutive weeks of bear-run in the face of mixed corporate earnings and dividend announcements. Profit taking and portfolio repositioning continue on the strength of numbers emanating from quoted companies and the economy, ahead of the release of Nigeria’s Consumer Price Index for March, and Q1 2024 earnings reports.

Also, the announcement of a new capital bass for banks by Nigeria’s central bank has rattled investors’ sentiments, further weighing down the market, even as Q2 trading opened on a bearish note in the midst of  increasing number of companies proposing primary activities by way of rights issue, among others. So far, we have seen capital raising proposals from Nigerian Breweries, Accesscorp, Fidelity Bank, FBNH, Jaiz Bank, GTCO and NGX Group. Many more companies are expected in the market for one activity or the other in the cause of 2024 and beyond. Already, Nestle and MTNN have also notified the investing public of their board and extra-ordinary general meetings respectively to discuss the negative shareholders fund and loss of capital.

These expected  numbers and other activities would shape the market further in the midst of the changing fundamentals and high yields in the fixed income market as a result of the 600 basis points rate hike in Q1 2024 which further confirmed the CBN’s hawkish stance in its bid to checkmate inflation and attract foreign investors at the expense of economic well being. We see that business activities are already slowing down as indicated by the Purchasing Managers’ Index for March. According to the report by Stanbic IBTC, the last PMI came flat at 51 points, same as that of February, reflecting the impact of the hike in the prices of goods and services due to the consistent drop in purchasing power among the people, keeping many company products on the shelf, a situation that affected replenishment of inventory.

The ongoing reforms of the government has spread to the power sector with the recent electricity tariff hike to N225 from N68 per watt for those in the Band A zone as government moves to save almost N1.1tr by reducing power subsidy and attract private sector investment into the sector. This is also expected to boost infrastructure and drive economic growth and development.

Technically, the nation’s equity market remains at its overbought zone on a weekly chart, to exhibiting some interesting behaviour that calls for cautious trading even as sentiment reports for the period reveals selling sentiment, while MFI and RSI reads 70.47 and 74.84 points respectively looking down, as the index’s action trades above the T-line on a weak momentum. The bearish trend  and negative breadth for the period occurred in the midst of selloffs and profit taking  as dividend income investors  and bargain hunters  took advantage of pullbacks to position in dividend paying companies with high payout, growing earnings power,  low valuation and strong fundamentals.

We note that the ongoing government reforms are yet to put the economy on the path of recovery, or progress due to the continued mismatch of policies, and even somersault altogether in some cases.

The global stock markets had a mixed performance record a big drop on the last trading session of the week, after bull trends in Q1 as fear of rate hike and increasing geopolitical tensions weighing on investors sentiment and confidence. Even as rally in oil price has triggered likely return of rate hike to cheakmate inflation. These had slowdown the expectation of rate cuts after the last  US and UK rates pause. Also, the mixed PMI and inflation data had reflected on the week trading sentiments in different domains, as Q1 earnings reports in these mature market are expected to be mixed.  which pushed the MSCI world index to close higher with 2% gain for the week. In the new week, the  expected corporate earnings and other news  will shape the market.

To navigate the rest of Q2 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 has recorded its six months high to trade above $90 at $91.15per barrel following the outcome OPEC minnstrial meeting to keep its production cuts unchanged. As rising geopoliticl tensions threats supply, coupled with escalating  Middle East conflict. As war in Ukurine and Russia disruption in oil output in the face of rallying price. The up and down movement of oil price has continues to drive volatility across different investment windows and inflation again.

Movement Of NGXASI

The NGX had a bearish week with the benchmark NGX All-Share index recording four consecutive sessions of  down market after the Easter holidays, despite the release of more audited 2023 full-year  accounts by companies with dividend recommendations. For example, Stanbic IBTC and Wema Bank  provided their full-year earnings reports with impressive numbers, declaring dividend of N2.20 and 50 kobo respectively.

Trading  for the week started on a negative note, halting previous gains with the index losing  0.02% on Tuesday when trading resumed after the Easter holidays, a trend that was sustained for the rest of the week. The index suffered a decline on midweek, Thursday and Friday when it lost 0.32%, 0.43%  and 0.29% respectively on selloffs and profit taking in blue chip companies and highly priced stocks. This brought the week’s accumulative loss to 1.08%, against the previous week’s 0.08% red position.

In all these, the composite  NGX All Share index shed 1,124.40bps, closing at 103,437.70bps, from previous week’s 104,562.10bps closing level, after  touching  an intra-week low of 103,412.30bps from a high  of 104,791.50bps. Market capitalisation also lost N620bn to N58.50tr, representing a 1.08% value slide.

The top  advancers’ table for the period was dominated by medium  and low cap stocks in the midst of profit taking and selloffs that pullback many stocks. Also notable was the fact that market players are still trading with caution, even when taking position and carrying out sector rotation  ahead of more earnings reports and unfolding events in the government reform process.

Market technicals for the period were negative  and weak  as losers  outnumbered gainers  in the ratio of 41:30 on a selling sentimnts as revealed by investdata sentiment report showing  2% ‘buy’ volume and 98% sell position. Money Flow Index was looking down at 70.47 points  from the previous week’s 78.04points, an indication that funds left the market on a weekly time frame.

Technical View

The NGX index’s action had formed a consolidation and ranging chart pattern that signal that a long overdue correction is underway, but needs to be confirmed in the new week and month, as more financials flow into the market to change momentum and sentiment, despite, the selling sentiment for the period and higher yields in the alternative market. Already, the index  has entered a distribution phase on the weekly chart. We note that the 101,295bps is a strong support level on the daily and weekly time frame, even as the index on the daily time frame is declining. The market is at a critical zone as all eyes are on the financials of banks to support market fundamentals and attract inflow again. Also, we note that investors are taking long-term positions in the face of dividend expectations and volatility.

We also note that sellers are in control, as revealed by the selling sentiment and negative market breadth, as the index is trading above the T line and 50-Day Moving Average on the weekly chart.

Bearish Sectoral Indices

The sectoral indexes for the week closed red,  except for  NGX Consumer Goods that gained 0.8%, while NGX Banking  index  led the decliners after losing 6.7%, followed by Insurance and Industrial Goods  with 0.90%  and 0.30% respectively. Just as NGX Oil/Gas finished flat.

Transactions in volume and value were up as players exchanged 3.26bn shares worth N60bn, compared to previous week’s 1.80bn units valued at N52.04bn. Volume was driven by Financial Services, Consumer goods  and Services industry,  boosted specifically by  Abbey Building, Tourism Company, Zenith Bank, GTCO and UBA.

Cutix and Morison Industry  were the best performing stocks for the week, after gaining 22.9% and  20.5% respectively, closing at N3.19 and N2.12 per share on market forces and  sentiment. On the flip side, FBNH  and SterlingNG lost 14.20% and 13% respectively, at N30.50 and N4.70per share, on profit taking.

Outlook for the week

We expect the mixed sentiment and profit taking, as portfolio rebalancing continued in  the face of  expected earnings reports and higher yields outlook in the fixed income market, despite the rising inflation. Bargain hunters are also expected to take advantage of pullbacks to buy into dividend stocks. Investors are watching with rapt attention as the government takes steps to resolve the country’s lingering FX challenges which has thrown many companies into a negative earnings positions.

However, retracement to the 101,000bps level and below is possible on correction as global and domestic events unfold.

Ambrose Omordion

CRO|Investdata Consulting Ltd




Tel: 08028164085, 08179547605