Positive Sentiment May Linger On Bargain Hunting, Reactions To Impressive H1 Financials

Market Update for August 2

Nigeria’s equity market witnessed an increased positive momentum and buying interests as the composite NGX All-Share index retraced up to reverse the previous session loss, on a low traded volume and positive market breadth in the midst of impressive corporate earnings and prevailing economic uncertainties. Also, market players are digesting the recent financials made available to the market.

It is not over for the market despite the increasing global volatility on the rising geopolitical tension and slowing consumer spending, still there are pockets of strength in some sectors on the better-than-expected earnings released that give an insight into the inherent upside potentials associated with the industries and companies in these sectors. There is the possibility of sectors beating the next quarterly estimates and predictions to their pre-pandemic performance as they deal with capacity building in the midst of soaring costs and insecurity.

The NGX earnings reporting season is gradually coming to an end with impressive corporate numbers that beat market expectations while some earnings were mixed, just as others were equally disappointing, especially medium and low cap stocks. The earnings performance of companies that comprise the NGX-30, which has supported the market rally before now, offers investors and traders an insight into the general mood, just as Price/Earnings ratios of most companies on the exchange revealed their underpriced state, with higher upside potentials to attract liquidity and positive sentiment.

As the new uptrend is signaled, investors need to navigate the market now that many equity prices look cheap on the strength of impressive earnings and relatively low prices. The market cycle of a bear situation and market bottom in the face of technical patterns of oversold market or individual stocks signal that a reversal is underway, as bargain hunters take advantage of the pullbacks to reposition their portfolios.

The market again broke out the 50,000 basis points psychological line, trading below the ‘T line’ and 50-day moving average, to attract bargain hunters as sector rotation and portfolio rebalancing increased amidst the scorecards of many companies in the market. It is therefore time to use technical tools, if you have been ignoring the charts and fighting the trends, it is your chance to step up your game. At this current market mood, investors and traders should target leaders in the various sectors with strong fundamentals, and positive technicals as the market reversal is underway depending on the earnings power.

To navigate the month profitably using fundamental and technical analysis to run, join investdata live sessions at noon every trading day “and 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 range market. Despite the mixed sentiment witnessed, it is time to go shopping for undervalued stocks, sectors and the next insider playing opportunity.”

Technically, the NGX index’s action had just signaled a new uptrend amid buy interest in blue chip stocks and low liquidity as a result of the high interest rate. The daily index and price actions will give direction as to what we should do and expect in Q3 looking at improvements in private sector manufacturing report from Stanbic IBTC that shows PMI was up in July to 53.2 point from 50.90 points in June, just as more insights into the entire second-half will be unfolding. Market recovery at this point may be powerful, depending on the level of liquidity as corporate numbers had already shown sectors and industry to look at, as portfolio rebalancing and sector rotation continue.

Oil prices pulled back again to trade at $100.10 per barrel in the international market, amid the fear of a recession, following the low factory activities in China, Japan and others that now signal demand fear, made worse by the weakened GDP in the US that may push the world’s largest economy into a technical recession. Already, central banks across the globe have continued to hike rates in the fight against rising inflation, in the midst of a sluggish economic growth data from China and others. All these have continued to influence the monetary policy options of central banks as they move to checkmate the impacts of the Russia-Ukraine conflict on the global economy to avoid the looming economic recession.

Nigeria’s soaring inflation is a potent threat to the fixed income market and investment yields, which should be an indication that there will be a reversal of funds flowing back to equity space in no distant time, as institutional investors rebalance their portfolios.

Tuesday’s trading started slightly on the upside and was sustained for the rest of the trading session on the buying interest in blue-chip stocks, a situation that pushed the NGX’s index to an intraday high of 50,626.04bps from its lows of 49,950.32ps before closing sharply above its opening figure at 50,626.04 bps.

Market technicals were positive and mixed, with lower volume traded than the previous day in the midst of breadth favoring bulls on buying sentiment as revealed by Investdata’s Sentiments Report showing 100% buy position. The total transaction volume index stood at 0.67 points, just as momentum behind the day’s performance was weak as Money Flow Index is looking up at 27.94pts, from the previous day’s 22.03pts, indicating that funds entered the market.

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Index and Market Caps

The benchmark NGX All-Share index at the end of Tuesday trading gained 675.75bps, closing at 50,626.04bps, after opening at 49,950.32bps, representing a 1.4% growth. Similarly, market capitalization rose by N364.39bn, closing at N27.30tr, from the previous day’s N26.94tr, which also represented a 1.40% appreciation in value.

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Meanwhile, Tuesday upturn was driven by accumulation in MTNN, Nestle, UACN, Unilever, Mansard, Zenith Bank, Cutix, Caverton, UPDC, Wema Bank, Jaiz Bank, and Honeywell, among others, which impacted positively on Year-To-Date gain, increasing to 18.52%. Market capitalization gain YTD also fell to N3.85tr YTD, representing a 22.16% rise over the opening level for the year.

Bullish Sector Indices

Performance indexes across sectors closed in green, except for the NGX Insurance that closed 0.04% lower, while the NGX Consumer Goods led the advancers after gaining 1.14%, followed by Banking and Industrial goods with 0.63% and 0,02% respectively. As Oil/Gas closed flat.

Market breadth, remained positive as gainers outnumbered losers in the ratio of 19:8; just as activities in volume and value terms were mixed, after investors exchanged 129.17m shares worth N2.86bn, with volume driven by trades in FBNH, Multiverse, GTCO, Zenith Bank and AIICO.

Honeywell Flour and Jaiz Bank were the best-performing stocks, after gaining 9.66% and 9.46% respectively, closing at N2.27 and N0.81 per share respectively on market forces and impressive Q2 numbers. On the flip side, Coronation Insurance and Chams lost 9.76% and 8.00% respectively, closing at N0.37 and N0.23per share, purely on selloffs.


Market Outlook

Expect a positive sentiment to continue on bargain hunting and reaction to impressive half-year financials of companies in the midst of sovereign risks, as interim dividends are expected from first-tier banking stocks. We note also the flow of funds into the fixed income segment on the rate hike by the CBN, as sector rotation persists. Analysts are also focused on the lookout for Q2 GDP and flow of funds amid oil prices oscillation. Also, the market continues to interpret the rising inflation in relation to the crude oil price and other factors, in the midst of profit-taking and portfolio rebalancing. This will result in market players targeting fundamentally sound and dividend-paying stocks in the hope of dividend announcements.

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Ambrose Omordion

CRO|Investdata Consulting Ltd





Tel: 08028164085, 08179547605