Profit Taking May Linger Ahead Of 2023Q4 Earnings, Inflation Data- Time To Take Advantage Of Price Correction

Market Update for January   10

Trading activities on the Nigerian Exchange at the midweek witnessed a sharp pullback due to profit booking by market players after eight consecutive sessions of up market that ushered in the 2024 post-election year.  Nonetheless, the market and economic outlook remained mixed, despite opening on a positive note, ahead of the peak of the NGX’s corporate earnings reporting season when most companies will announce their full-year 2023 audited numbers and dividend payout.

Also noteworthy is the fact that the fiscal and monetary authorities are yet to give a clear direction of where the economy is heading, coupled with developments at the global economic arena, especially the geopolitical tensions, and fear of a recession, among others that will continue to influence investment decisions, while driving volatility. On Wednesday night also, the Central Bank of Nigeria, after weeks uncertainty, announced the sacking of the executives and boards of three bank, appointing acting an MD and executive director for each for the affected banks. The action is believed to have and will continue to weigh on market perception, not minding the fact that the affected institutions are not quoted on the exchange.

The NGX All-Share index closed negative, halting its bullish run on a very high traded volume in the midst of negative market breadth and selling sentiment to reflect sellers’ market in the face of ongoing portfolio repositioning for dividend income and capital gain.

The market at the midweek entered its distribution phase in the midst of unstable outlook for fixed income markets and rising inflation which was 28.22% for November. All eyes are still on the December CPI as the outcome of midweek NTB and OMO auctions were mixed, TB recorded a sharp decline in rate for all the tenors to 2.44%, 4.22% and 8.4% respectively for 91days, 182 days and 364 days against 7%, 10% and 12.24% in the previous auction, while OMO auction yields inched up for 97 day, 181 day and 363 day  to 10.5%, 14% and 17.75% respectively, as against 0%, 12% and 15% in the previous auction, just to attract foreign inflow in the face of increasing economic headwinds and insecurity in the system, ahead of this month’s policy meeting of the Central Bank of Nigeria (CBN).

The NGX index’s action remains above the T-line, despite the pullback recorded in the midst of high volatility and selling sentiment to trade above all the Moving Averages on the daily, weekly and monthly time frame. Portfolio rebalancing on the exchange continued as earnings and the dividend season draws closer with unaudited Q4 results hitting the market any moment from now. Just as more companies like Africa Prudential, Neimeth International Pharm, NCR Nigeria and others notified the NGX and investors of their board meetings and closed period for the 2023 full-year financials, in the midst of January effects and other factors associated with the increasing economic headwinds

The candlestick formation at the end of the session revealed weakness in the market and likely continuation of trend that needs confirmation as Thursday trading opens. 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 slide into distribution phase and a topping chart pattern.

Momentum indicators also revealed weakness at the overbought region, as the ADX read 63.58, while RSI and Money Flow Index are looking down to 83.72 and 80.36 points against the previous session 93.73 and 92.49 points respectively. This should be a concern for discerning investors, as smart traders cash out capital gain. The trading volume pattern suggests the entrance of new investors and full return of many players who had gone on holidays and institutional investors accumulating more positions 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 oscillation continued, trading at $76.95 per barrel in the midst of supply disruption and unexpected decrees in US crude supplies in the face of rising tensions as middle east conflicts escalating and red sea security concern, while the war in Ukraine and Russia has escalated to influence the global economic outlook. The geopolitical tension across the globe is a major threat to many economies. Also, oil supply increase by OPEC and others impact oil price as it continued trade below $80. This trend may likely continue in 2024, this up and down movement of oil price also continues to drive volatility.

Midweek’s trading opened slightly in the green before pulling back, a situation that was sustained for the rest of the session, despite oscillating on profit taking in financial stocks and others, despite positioning in some stocks, a situation that pushed the NGX’s index to an intraday low of 81,413.08 basis points from its highs of 83,234.64bps before closing below its opening level at 82,024.38 bps.

Market technicals were negative and mixed, with higher volume of trade compared to the previous session in the midst of breadth favoring the bears on a selling sentiment as revealed by Investdata’s Sentiments Report showing 34% buy position and 66% sell volume. The total transaction volume index stood at 2.73points, just as impetus behind the day’s performance was strong as Money Flow Index looking up at 80.36pts, from the previous day’s 92.49pts, indicating that funds left the market.

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Index and Market Caps

The key performance NGXASI, at close of the trading session shed 1,187.46bps, closing at 82,024.38bps after opening at 83,191.84bps, representing a 1.40% decline, just as market capitalization fell by N639.44 billion closing at N44.89tr from the previous day’s N45.52tr, which also represented a 1.40% value loss.

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Meanwhile, the downturn was driven by selloffs and profit taking in the shares of Lafarge, Oando,MTNN, Transcorp, ETI, GTCO, Zenith Bank, UBA, SterlingNG, Accescorp, Mansard, Ucap, FBNH and Aiico, among others, which impacted positively on Year-To-Date gain of 9.70%. Market capitalization YTD gain stood at N4.21 trillion, representing 9.70% above its opening level for the year.

Mixed Sector Indices

Sectorial performance indexes for the session were mixed, as NGX Consumer and Industrial goods closed higher by 2.45% and 1.39% respectively, while NGX Banking index led the decliners after losing 7.97%, followed by Insurance and Energy with 6.12% and 0.40% respectively.

Market breadth turned negative as losers outnumbered gainers in the ratio of 62:13; whereas activities in volume and value were up, after players exchanged 1.61bn shares worth N25.68bn. Volume was driven by trades in Transcorp, Accesscorp, SterlingNG, Jaiz Bank and Aiico

Cadbury and VeritasKapital  were the best performing stocks, gaining 9.9% and 9.8% respectively, closing at N19.95 and N0.45per share respectively on market forces and expectation of earnings.  On the flip side, May/Baker and Chams lost 10% each, closing at N5.49 and N2.16per share, purely on profit taking.

Market Outlook

We expect profit taking and mixed sentiment to continue on slow momentum, as TB rates decline on all tenor ahead of unaudited Q4 2023 numbers and volatility in the face of  expected December CPI and coming MPC meeting, as 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