Positive Sentiments Yet As Investors React To Earnings Inflow Amid Volatility

Market Update for January   25

The positive outing on the Nigerian Exchange continued Thursday as demand for blue chips and dividend paying stocks increased across the major sectors of the market, as more corporate earnings flowed in during the session. The numbers were impressive, especially Japaul Gold’s unaudited full-year 2023 with top and bottom lines rising 94% and 250% respectively, translating to 11 kobo earnings per share from three kobo in 2022. Royal Exchange Plc earnings income and profitability levels went up significantly by 253% and 406% respectively, producing 9 kobo EPS from the previous negative six kobo in 2022.

The benchmark NGX All-Share index closed higher on a reduce magnitude, crossing the 102,000 psychological line to another new  all-time high of 102,149.90bps on low traded volume but positive market breadth which reflected the renewed positioning to sustain the uptrend in the midst of volatility and the ongoing earnings reporting season. Already, all eyes are on the big names, and particularly some banks that usually release their unaudited accounts for their numbers expected to offer more insights into market valuation and fundamental analysis as prices are recovering from pullback.

However, market players continued to digest the outcome of last Treasury Bills’ auction in the face timing as earnings reporting season is entering its peak with dividend expectation ahead of Monetary Policy Committee meeting of the Central Bank of Nigeria (CBN) slated for end of February. The committee chairman has persistently noted the desire to cut inflation to 21% in 2024, even as many wonder how the apex bank will achieve such target, with plans to hike rates in the coming all-important meeting. The meeting will be holding six months after leaving the benchmark Monetary Policy rates unchanged at 18.75% since July 2023. Notwithstanding the recovery in rates in TB, the equity market remains a better investment option. Note that fixed income rates and yields have continued to oscillate, while the NGX year-to-date returns now stands at a robust 36.6% above 28.92% inflation rate.

Position taking continued in some sectors and individual stocks in the midst of expectation of more corporate earnings, which has triggered sector rotation as pulled back provides buying opportunities for discerning investors and smart traders watching out for the value area of resistances and supports level ahead of these companies’ results hitting the market any moment from now. The NGX has displayed a mixed picture as market players eagerly awaits numbers from the companies, following the optimism that was fueled by the belief that financial sector impressive performance and growth prospect of the economy in the face of rising macroeconomic headwinds will support further rally and revaluation of assets in 2024. But the recent rally in the past few sessions had been driven by large cap companies, as traders cash out profit from the low, medium and blue chip stocks to create new entrance for dividend income players.

Also, all eyes are still on the fiscal and monetary authorities for a clear direction of where the economy is heading, given developments in the global economy, especially the sustained geopolitical tensions in the Middle East and Eastern Europe. There is also the fear of a recession, among other issues that will continue to influence investment decisions, while driving volatility.

The NGX index’s action remains above the T-line, as it makes higher highs on daily basis in the midst of high volatility and positive momentum to trade above the short and long term Moving Averages on the daily, weekly and monthly time frame. Portfolio rebalancing on the exchange continued in the face of earnings season and volatility, as Guinness Nigeria, Morison Industries and Eunsell Interlinked Plc made available unimpressive quarterly and full year results to the market as these companies posted negative earnings.

The candlestick formation and chart pattern revealed buying sentiment that may likely continue, depending on market forces and sentiments as trading opens this morning. Therefore, market players should target companies with consistent track records of dividend payment, strong fundamentals and growth prospects that will support further growth in earnings which price feeds on in any market cycle. Technically, the index’s action has remained on overbought, which is also a topping chart pattern that signal reversal of trend.

On the strength behind the trend or the session remained strong as revealed by momentum indicators, despite the overbought state of the market, as the ADX read 81.45, while RSI and Money Flow Index are looking flat to 95.86 and 88.46 points against the previous session 95.74 and 88.68 points respectively. This should be a concern for investors and smart traders as they trade with caution. The trading volume pattern suggests hold and watch disposition of market players, as profit taking continue while investors accumulate more positions in some stocks as others investment windows returns remain below inflation and negative.  Also, the anticipated financial market and economic reset in 2024, comes with huge opportunities to create wealth for smart investors and traders.

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Oil price increased on Thursday, to continue it oscillation as trades at $82.26 per barrel in the midst of US crude inventories declined and recent assault by Houthi forces on ships near Yemen’s coast as conflicts in the Middle East and Ukraine persists, in the face of global economic outlook remained mixed. The rising geopolitical tension across the globe is also a major threat to many economies. Also, oil supply increase by OPEC and others impact oil price as it continued to oscillate. This trend may likely continue in 2024, this up and down movement of oil price also continues to drive volatility.

Meanwhile, Thursday’s trading started in the red before rebounding, and was sustained throughout the session, despite oscillating on buying interests in energy stocks, blue chip companies and profit taking in others. This pushed the NGX’s index to an intraday high of 102,149.93 basis points where it eventually closed for the day, from its lows of 101,470.50bps.

Market technicals were positive and mixed, as volume of trade was lower compared to the previous session in the midst of breadth favoring the bulls on a buying pressure as revealed by Investdata’s Sentiments Report showing 100% buy position and 0% sell volume. The total transaction volume index stood at 0.69points, just as impetus behind the day’s performance was strong as Money Flow Index looking flat at 88.49pts, from the previous day’s 88.68pts, indicating that funds entered the market.

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Index and Market Caps

At the end of Thursday’s trading, the composite NGXASI gained 578.82bps to close at 102,149.90 after opening at 101,571.11bps, representing a 0.57% up, just as market capitalization rose by N316.75 billon, closing at N55.90tr from the previous day’s N55.58tr, which also represented a 0.57% value gain.

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The upturn was driven by position taking in the shares of Seplat, Geregu, ETI, GTCO, Zenith Bank, UBA, Accesscorp, Wema Bank, Nascon NEM and Aiico, among others, which impacted positively on Year-To-Date gain of 36.61%. Market capitalization YTD gain stood at N12.89tr, representing 36.61% above its opening level for the year.

Bullish Sector Indices

The sectoral performance indexes for the session were in green, save for NGX Industrial goods indexes closed lower by 0.11%, while NGX Energy index led the advancers after gaining 4.91% followed by Insurance, Banking and Consumer goods with 4.91%, 1.95% and 0.08% respectively.

Market breadth was positive as gainers outnumbered losers in the ratio of 32:27, whereas activities in volume and value were up, after players exchanged 504.19m shares worth N10.30bn. Volume was driven by trades in UBA, Transcorp, SterlingNG, Japaul Gold and Accesscorp.

Seplat and Universal Insurance were the best performing stocks, gaining 10% each, closing at N3074.60 and N0.44per share respectively on market forces and sentiments.  On the flip side, Ikeja Hotel   and Honeywell lost 9.91% and 9.70% respectively, closing at N7.18 and N4.47per share, purely on profit taking and selloffs.

Market Outlook

We expect positive sentiments and mixed trend  to continue on profit taking and reactions to earnings reports, as  market players digest these numbers  in the face of  volatility and coming MPC meeting, while pullback at this point will add more strength to upside potential. As such, investors should take advantage of price correction. Also looking at the trends and events across the globe and domestically.

Ambrose Omordion

CRO|Investdata Consulting Ltd




Tel: 08028164085, 08179547605