Profit Taking On NGX, Amid Bargain Hunting For Dividends, As 2023 Fades Away

Market Update for December   27

Trading activities on the Nigerian Exchange closed negative for the last week of 2023, as traders and investors returned from the Christmas holidays, as they positioned ahead of the New Year. This happened amid the continued strategic portfolio rebalancing and profit taking on a less than average traded volume and positive market breadth which extended the bear transition for the second successive session.

The pullback at midweek was attributed to the cash out by traders on highly priced stocks that had recently appreciated on the strength of the Santa Claus rally witnessed before now. Despite the pulled back, there was a mixed pattern of trading as buying interests in financial services and energy stocks continued with notification of closed period and board meetings ahead of the 2024 earnings reporting and dividend season. Meanwhile, market fundamentals and liquidity level continues to change.

The outcome of midweek’s Treasury Bills Primary Market Auction further reveals a rate decline in the 182 and 364-Day tenors to 10% and 12.24% respectively, from the previous 11% and 13.5%, while 91-Day tenor increased to 7% from 6.25% in the last auction. This declining yields/rates and the mixed outlook for the fixed income market instruments in the face of rising inflation, has supported funds flowing into the equity space as players hedge against the prevailing hyperinflation. The year 2024 is setting up with challenges and opportunities that comes with the ongoing global and domestic financial markets reset in the face of rising geopolitical tension. There is also the ongoing reforms by the fiscal and monetary authorities.

The NGX index’s action extended its pullback, trading below the 74,000 basis points mark, and above the T-line, indicating the distribution phase of the market on a selling sentiment and mixed session as revealed by trade metrics for the day.

At this point, let your technical analysis to guide you at all time. Market players are expected to take advantage of this correction in the market to create more wealth by taking the right decision at the right time.  Locking in gains on a portion of a trade is a fantastic way to enjoy trading. Despite, the current disconnection of the stock market from economic reality of the country, which remains a concern for investing public.

Trade metrics at the end of the session supported the new downtrend, with NGX and momentum indicators like MACD moving in the same direction to indicate bear divergence on a less than average traded volume and selling sentiment, even as 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, even as Vitafoam released its full year audited account for the period ended September 30, 2023 with numbers that are below expectation. Specifically, top and bottom line declined by 14% and 3% respectively, despite which the directors have recommended a dividend of N1.56 per share, up from N1.52 paid in 2022.

To navigate the rest of the month and year profitably using fundamental and technical analysis, join investdata’s live sessions at noon every Monday, Wednesday and Friday “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 mixed trend and  volume pattern, it is time to shop for fundamentally sound undervalued stocks, sector rotation, go for defensive stocks at the next insider playing opportunity.

Oil price oscillation continued as it retraced up slightly trades at $79.74 per barrel in the midst of Russia and Iran agreeing to trade in their local currencies in the face of another attack on the Red sea. Even as the Middle East conflict is taking another dimension amid calls for another ceasefire, while the three major central banks left rates unchanged due to cooling inflation and outlook of rates cut in 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.

Midweek’s trading opened on the upside till midday before pulling back in the afternoon on profit taking hitting the highly priced stocks and others, while buying interest in banking, energy and insurance stocks continue. This situation pushed the Index to an intraday low of 73,717.60bps from its highs of 74,249.15 points, before closing below its opening level at 73,768.64bps.

Market technicals were mixed and weak with a higher volume traded, when compared to the previous session, in the midst of breadth favoring the bulls on a selling sentiment as revealed by Investdata’s Sentiments Report showing 10% buy position and 90% sell volume. The total transaction volume index stood at 0.95 points, just as the energy behind the day’s performance was strong, with Money Flow Index looking down to read 73.66pts, from the previous day’s 80.49pts, indicating that funds left the market.

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Index and Market Caps

At the end midweek trading, the composite NGX All-Share Index fell by 254.63bps, closing at 73,768.64bps, from the opening of 74,023.27bps, representing a 0.34% decline. Market capitalization also fell by N139.34bn, closing at N40.37tr, from the previous day’s N40.51tr, which also represented a 0.34% value loss.

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Meanwhile, the day’s downturn was driven by profit taking and sell pressure in heavyweights- Dangote Cement, Nestle, Okomu Oil, Stanbic IBTC, FBNH, UBA, Accesscorp, Transcorp, UACN and Dangote Sugar, among others. This impacted negatively on Year-To-Date gain, that increased to 43.94%, while Market Capitalization YTD gain stood at N11.45tr, representing a 44.34% rise above its opening level for the year.

Mixed Sector Indices

Sectoral performance indexes were mixed, as NGX Industrial and Consumer Goods closed lower by 1.10% and 0.15% respectively, while the NGX Insurance led the advancers after gaining 3.06%, followed by Energy and Banking with 0.24% and 0.17% respectively.

Market breadth was positive as gainers outnumbered losers in the ratio of 40:21, while activities in volume and value terms were mixed, after investors exchanged 432.91m shares worth N12.94bn, driven by trades in Jaiz Bank, Transcorp, Unity Bank, GTCO and Ucap.

Eterna and AXA Mansard Insurance were the best performing stocks, gaining 10% and 9.96% respectively, closing at N13.20 per and N5.19 share respectively, on market sentiment and forces. On the flip side, UACN and Deap Capital lost 10% and 7.25%, closing at N13.50 and N0.64 per share, purely on the back of profit taking and selloffs.

Market Outlook

We expect mixed sentiment and profit taking to continue on bargain hunting for dividend paying stocks as 2023 winds down 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 the beginning  with unaudited 2023 accounts and dividend season.

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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