Recovery Ahead, Amid Mixed Sentiments, As Investors Digest Macroeconomic Data

Market Update for August 17

The bear dominance continued on the Nigerian Exchange for the fourth consecutive trading session, as market players took profits, selling off some positions to realigns their portfolios on the strength of half year corporate earnings released so far and happenings in the fiscal and monetary stance as ongoing economic reforms present opportunities and challenges for businesses and investors.
NGX All-Share index closed lower again on a mixed session as reflected in positive market breadth, sector performance indexes and improved traded volume, although it was still less than average. Market players continued to digest macroeconomic indices that are putting pressures on financial market instruments. The recent inflation data which has revealed the worsening negative returns in the fixed income space. These are to further guide the ongoing portfolio repositioning ahead of first-tier banks’ half-year earnings reports which we expect would be positive, given that operators in that sector are net beneficiaries of foreign exchange revaluation gains, aside from the corporate actions of PZ, Flour Mills and Honeywell Flour for the financial year ended May and March 2023 respectively.
The current market position and state of the economy call for cautious trading, while discerning investors are taking advantage of the market consolidation and pullbacks, after forming a descending triangle and flag that supports continuation of trend or reversal. It is the time to buy into value stocks with strong fundamentals, as the market looks forward to favourable and positive news that will trigger yet another round of buying interest. Also noteworthy is the rates mixed outlook in the fixed income market, amidst portfolio repositioning and sector rotation on the strength of company earnings’ power.
The increasing volatility is due to the changing economic fundamentals, and government reforms that are driving the reset in financial market and trading environment. It should be taken against the backdrop of August being a very dicey month when eyes should be kept on the chart, trend, sentiment and volume at all times, using multiple time frame analyses to catch short, medium and long term buying breakouts or sell breakdowns. All these are already impacting prices of equities in the face of the recent rate hike that made fixed income instruments attractive for risk averse investors, just as institutional investors continue digesting these numbers in the midst of rising inflation and opportunities within the equity space to hedge against its surging pressure.
Also, the Price/Earnings ratios of the NGX and most individual companies reveal their relatively undervalued state and higher upside potentials to attract liquidity and positive sentiment. The economic managers are expected to give clear directions of government policies and their implementation. This is why there is need for investors to navigate the market now that many equity prices look relatively cheap on the strength of some impressive earnings. The market cycle of top and bottom in the face of technical pattern of over bought and sold market or individual stocks signal that a reversal is underway, as bargain hunters take advantage of the pullbacks to reposition their portfolios.
The NGX index’s action still trades below the 65,000 basis points and ‘T line’ but above the 50-day moving average, attracting bargain hunters to position in fundamentally sound medium and low cap stocks amidst digesting of scorecards of many companies, assigning of portfolios to the cabinet ministers. This is besides the $3bn loan to support FX float in the exchange market. It is therefore time to use technical tools, if you have been ignoring charts and fighting the trends, it is your chance to step up your game. It is pertinent to stress the fact that profit taking is part of market dynamics, which can occur at any time. As we look forward to a mixed outing and intermittent profit taking, since policy factors that pushed the market up are shaking, as market wait for favorable news and statements from the minsters.
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Oil price oscillation continued, as it trades flat at $83.85 per barrel in the midst of weak global demand and gloomy economic condition in China. The Russia-Ukraine war remains a major concern, the prevailing high interest rate regime and slowing inflation. Also, supply tightened due to the Russia-Ukraine conflict that entered the second year. This up and down movement in oil price, has continued to drive volatility across markets.
Thursday’s trading started on the downside and oscillated throughout the session to pullback profit taking and buying interest in some stocks. This situation pushed the Index to an intraday low of 64, 448.96basis points from its highs of 64,663.78bps, before closing below the opening points at 64,449.78bps.
Market technicals were positive, but mixed with a higher volume traded when compared to the previous session in the midst of breadth favoring the bulls on a buying sentiment as revealed by Investdata’s Sentiments Report showing 100% buy position and 0% sell volume. The total transaction volume index stood at 0.51 points, just as the energy behind the day’s performance was relatively weak, with Money Flow Index reading 42.50pts, from the previous day’s 41.42pts, indicating that funds entered the market, despite closing lower.
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Index and Market Caps
The NGXASI, at end of Thursday trading slipped by 176.32 basis points, closing at 64,448.96bps, from its 64,625.28bps opening level, representing a 0.27% decline. Market capitalization fell by N96.51 billion to N35.27tr, from the previous day’s N35.37tr, which also represented a 0.27% value loss.
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Meanwhile, the day’s downturn was driven by profit taking in the shares of Zenith Bank, GTCO, FBNH, Accesscorp , UBA, Nascon and Unity Bank, among others. This impacted negatively on Year-To-Date growth, which reduced to 25.75%, while Market Capitalization YTD gain went up to N5.86tr, representing a 26.60% rise above its opening level for the year.

Mixed Sector Indices
Sectoral performance indexes were mixed, as the NGX Banking and Industrial goods closed 0.47% and 0.03% lower respectively, while the NGX Insurance led the advancers after losing 0.49%, followed by Consumer goods and Energy with 0.34% and 0.06% respectively.
Market breadth turned positive as gainers outpaced losers in the ratio of 21:17, while activities in volume and value were mixed after investors exchanged 320.35m shares worth N3.73bn, driven by trades in Fidelity Bank, Transcorp, UBA, Universal Insurance and FBNH.
John Holt and ICWG were the best performing stocks, gaining 10% and 9.76% respectively, closing at N1.32 and N3.60per share each, on market forces. On the flip side, Guinea Insurance and RT Briscoe lost 8.57% and 8.16%, closing at N0.32 and N0.45 per share, purely on the back of profit taking and selloffs.

Market Outlook
We expect recovery as mixed sentiments continue on bargain hunting and others like market players digesting macroeconomic data , assigning of portfolios to the minsters and the $3bn cash loan to help intervention in Nigeria’s FX market in the midst of expected first tier banks earnings reports and bargain hunting, while portfolio realignment and sector rotation persists.
However, pullbacks are creating buying opportunities amidst economic reforms of the government, just as more policy pronouncements and economic managers hit the ground running, a situation expected to offer investment direction eventually.
We note that discerning investors have continued to target fundamentally sound companies and defensive stocks to protect their portfolios. Any pullback at this point may add more strength to upside potentials. As such, investors should take advantage of price rally to take profit, while also looking at the trends and events across the globe and domestically.

Ambrose Omordion
CRO|Investdata Consulting Ltd
Tel: 08028164085, 08179547605