Positive Sentiment May Linger Amid Profit Taking Ahead Of Dividend, Nov Inflation Data

Market Update for December   14

Stock prices on the Nigerian Exchange climbed higher on Thursday building on the midweek’s strong gains to extend the bullish momentum for the fifth successive sessions on a mixed sentiment as bargain hunting for banking stocks and profit taking in others continued. This is coming amidst the ongoing portfolio rebalancing and year-end seasonality ahead of peak NGX earnings reporting and dividend season in Q1 2024, just as the year 2024 is setting off with a financial market reset that comes with challenges and opportunities to build new wealth for discerning market players.

The mixed outlook in the fixed income market and the decline in the last Treasury Bills auction rates/yields across the all the tenors in the midst rising inflation has triggered more inflow into the equity space. Already, the Q3 corporate earnings of listed companies, especially the services providers have signaled possibility of high dividend alongside capital gains on a shorter time frame as investors seek to hedge against the raging hyperinflation. The NGX All-Share index has meanwhile continued to make new all-time highs in the history of the Nigerian equity market, after crossing the 72,000 basis points threshold on mixed sentiments as some stocks hit new 52-week highs in the midst of expected recapitalization in the banking sector and increasing economic headwinds.

The NGXASI closed higher on a low traded volume and a flat market breadth in the face of mixed sentiment and positive momentum to trade above the T-line and 72,000 mark that support the ongoing rally which may be the last for 2023. Don’t be carried away by the current up market, but trade your plan and know when to take profit and cut loss if it does occur. Let your technical analysis guide you at all time.  As all eyes are on the expected November inflation reports today in the midst of prevailing weak economic activities as revealed by the latest PMI that further decline to 48 points from 49.1 in October. Traders and investors are expected to take advantage of any moves in the market to create more wealth by taking the right decision at the right time. As disconnection of the stock market from economic reality of the country remains a concern for investing public.

Also, the planned rates hike by the CBN at this time could result in an unintended economic contraction in an environment where growth is already weak and fragile, with high cost of funds further pushing cost of production and services higher, driving prices northward. This is made worse by imported inflation due to the lingering foreign exchange challenges, among others. The two consecutive quarters of rate hikes, as well as the proposed fresh round of bank recapitalization are expected to drive the much desired economic development in the face of a significant devaluation of the Naira, just as the surging inflation is bound to drive mixed outlook in the market and economy in the first half of 2024.

The positive market metrics supported the uptrend as momentum indicators signal recovery, as MACD moved with index action indicating bull divergence on low traded volume and mixed 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, trading at $76.94 per barrel in the midst of weak dollar and IEA raising oil demand projection for 2024. Even as middle east conflict is taking another dimension.  As the three major central banks left rate unchanged due to cooling inflation continue ahead of 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.

Meanwhile, Thursday’s trading started in the upside and it was sustained for the rest of the day, despite oscillating on positioning in blue chip companies and profit taking in some stocks. This situation pushed the Index to an intraday high of 72,539.04bps from its lows of 72,299.79 points, before it closing above its opening level at 72,458.03bps.

Market technicals were positive and strong with a higher volume traded, when compared to the previous session, in the midst of a par market breadth on a mixed sentiment as revealed by Investdata’s Sentiments Report showing 66% buy position and 34% sell volume. The total transaction volume index stood at 0.96 points, just as the energy behind the day’s performance was strong, with Money Flow Index looking flat to read 72.05pts, from the previous day’s 72.58pts, indicating that funds left the market, despite closing in the green.

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Index and Market Caps

At the close of Thursday’s trading the composite index NGXASI gained 158.24bps, closing at 72,458.03bps, from the opening of 72,299.79bps which represented a growth of 0.22%. Market capitalization rose by N85bn, closing at N39.65tr, from the previous day’s N39.56tr, which also represented a 0.22% appreciation in value.

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Thursday’s upturn was driven by buying interests in the shares of FBNH, Lafarge Africa, Dangote Sugar, Accesscorp, Transcorp, Zenith Bank, UBA, PZ and Infinity Trust Mortgage Bank, among others. This impacted mildly on Year-To-Date gain, that inched up to 41.37%, while Market Capitalization YTD gain stood at N11.76tr, representing a 41.64% rise above its opening level for the year.

Bullish Sector Indices

Sectoral performance indexes were bullish, save for the NGX Insurance that closed 1.94% lower, while the NGX Banking led the advancers after gaining 1.90%, followed by Energy, Industrial and Consumer goods with 0.02%, 0.02% and 0.01% respectively.

Market breadth was flat as gainers were equal to losers in the ratio of 26:26, while activities in volume and value terms were mixed, after investors exchanged 446.58m shares worth N7.26bn, driven by trades in Accesscorp, FCMB, Zenith Bank, UBA and Fidelity Bank.

Infinity Trust Mortgage Bank and Johnholt were the best performing stocks, gaining 9.83% and 9.73%, closing at N2.57 per and N2.03 share respectively, on market sentiment and forces. On the flip side, RT Briscoe and Mutual Benefits Assurance lost 9.84% and 9.43%, closing at N0.55 and N0.48 per share, purely on the back of profit taking and selloffs.

Market Outlook

We expect positive sentiment and profit taking to continue on bargain hunting for dividend paying stocks ahead of CPI reports 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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