Market Update for May 24
The bearish mood on the Nigerian Exchange got strengthened even more on Tuesday, as selling pressure increased on panic selloffs amidst reaction to the decision by the Central Bank of Nigeria to hike the benchmark lending rate by 150 basis points from 11.5% to 13% at the end of the two-day of its Monetary Policy Committee (MPC) meeting. The announcement, which came at towards the end of the closing session, forced the key performance NGX All Share Index to close significantly lower, notwithstanding, thereby extending the bear transition for the third successive session on a high traded volume, and amid negative market breadth.
Also, profit taking persisted to confirm the decline phase of the market at the end of the day’s activities, following which traders and investors should allow price actions to show then what to do next in an approaching bear market, or correction. Price determines our loss or profit in any market condition, therefore we should focus our research on price action rather than time lagging indicators or market fundamentals. This anticipation happened in the midst headwinds around the macro economy and global developments, especially as regard the ongoing war between Ukraine and Russia that has since February continued to disrupt the global supply chain, leading to rising inflation and rates.
In the face of pullbacks and selloffs, following and trading price simply means that the market tells you what to do and not the other way round, because price action is always right as it does not care what a trader feels or his/her bias is. Bull markets can go on for days, weeks, months and years, bear markets happen unexpectedly and can quickly destroy a trader’s profits, or even an entire trading account. Bear markets move with greater velocity than bull markets and is accompanied by high volatility, due to investor emotions. This rate hike by the CBN, the first in six years, could trigger flow of funds from the stock market to the fixed income side of the financial markets, while the rising inflation may support funds flow into commodity-backed securities, or stocks, as investors seek to hedge against inflation, as activities towards next year’s general election begin with the ongoing primaries of the various political parties.
The National Bureau of Statistics (NBS), on Monday released Nigeria’s GDP report, showing that the economy recorded a growth of 3.11% yoy in the first quarter of 2022, compared to the 3.98% of Q4 2021. This suggests that the economy contracted by 0.87% in Q1 2022, reflecting the impact of the high energy costs that slowdown business activity in the period under review. Stakeholders are, however, anxiously awaiting plans by the CBN to intervene in the petrol and gas products sector, which as announced was targeted at making premium motor spirit and diesel available, thereby easing the pain of manufacturers, SMEs, and households across the country, in the face of the epileptic power supply.
Oil price oscillation continues in the international market, trading at $112 per barrel, on the news that Shanghai has signaled an end to the lockdown imposed due to the impact of the ravaging Coronavirus pandemic and recent cut in interest rate to support its economy. This has been made worse by the EU embargo on the importation of Russian oil and a slight increase in production output by OPEC. The high prices of crude oil and diesel are pushing production and living costs up, heightening inflationary pressures across the globe on a weak economic outlook, thereby influencing monetary policies of central banks as they move to checkmate the impacts of the Russia-Ukraine conflict on the global economy to avoid a global recession. The nation’s soaring inflation is a potent threat to the fixed income market and investment yields, which should be an indication that more funds may likely flow into the equity space as institutional investors balance their portfolios.
However, market corrections are here as a result of profit-taking, hence the need to rely on your stop-loss effectively at this point of the decline phase signals continuation, especially when high cap stocks that control 70% of market capitalisation move down ahead of reactions to their earnings and expected dividend payments in May and June 2022.
The NGX index’s action pulled back again, into the decline phase, trading below the ‘T-Line’ and 20-day moving average on a correction. The market is relatively strong, despite the pullbacks that started on Friday last week. The strong support level is the 51,805.41bps region, while volatility persists and uptrends towards the next breakdown sported around 51,717.88bps. Should the index break this point, the next visible support is 51,562.83bps.
Technically, the NGX index is already on a correction due to the profit-taking and selloffs in the midst of impressive earnings and sector rotation. The possibility of the market sustaining this trend is high as a function of market forces and improved economic conditions during this quarter. We, therefore, advise investors to play defensive stocks and reduce investment risks around the market, as the market awaits a trigger after the MPC meeting.
Tuesday’s trading started on the downside and was sustained throughout the session, on profit-taking across all the sectors and market indices, a situation that pushed the NGX’s index to an intraday low of 51,940.67bps from its highs of 52,911.51ps before closing below its opening points at 51,949.64 points.
Market technicals were negative and mixed, and volume traded was higher than the previous day in the midst of breadth favouring the bears on a selling pressure as revealed by Investdata’s Sentiments Report showing a 99% sell position and 1% buy volume. The total transaction volume index stood at 1.84 points, just as momentum behind the day’s performance was strong with Money Flow Index looking down at 57.55pts, from the previous day’s 66.76pts, indicating that funds left the market.
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Index and Market Caps
The composite NGXASI, at the end of Tuesday’s trading, shed 961.87bps, closing at 51,949.64bps, after opening at 52,911.51bps, representing a 1.82% decline. Similarly, market capitalization fell by N518.55bn, closing at N28.01tr, from the previous day’s N28.53tr, which also represented a 1.82% depreciation in value.
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Meanwhile, Tuesday’s downturn was driven by profit-taking and selloffs in MTNN, Dangote Cement, Guinness, Vitafoam, Lafarge Africa, UACN, NEM, GTCO, Unilever, FBNH, Oando, Ucap and Zenith Bank among others. This impacted negatively on Year-To-Date gain, reduced to 21.62%. Market capitalization growth stood at N6.08tr YTD, representing a 26.11% rise over the opening level for the year.
Bearish Sector Indices
Performance indexes across sectors were down, led by the NGX Consumer goods which fell by 1.21%, followed by Insurance, Industrial goods, Banking and Energy with 1.09%,0.61%, 0.39%, and 0.32% respectively.
Market breadth was negative, as losers outnumbered gainers in the ratio of 38:17; just as transactions in volume and value terms were up after investors exchanged 720.19m shares worth N8.87bn. Volume was driven by trades in Ecobank Transnational Incorporated, Jaiz Bank, Accesscorp, UACN and Transcorp.
Japaul Gold and IMG were the best-performing stocks for the session, gaining 10% and 9.89%, closing at N0.33 and N10.00per share respectively on market forces and sentiment respectively. On the flip side, Guinness Nigeria and GSPEC Plc lost 10% and 9.77% respectively, closing at N88.20 and N2.77 per share, on profit-taking and selloffs.
We expect a continuation of this trend, on increased profit-taking and selloffs, as funds flow to the fixed income market on the latest CBN decision, just as portfolio rotations continue as market players digest the macro-economic data and Q1 corporate earnings release, ahead of March year-end 2022 audited financials with dividend announcements to support uptrend in the new month amid the rebound in oil prices. 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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