Reversal Ahead On Bargain Hunting, Reactions To Impressive H1 Financials, Interim Dividends Hope

Market Update for August 1

Trading on the Nigerian equity market started the month of August on a mixed and negative note, amidst selloffs in BUA Cement and other medium cap stocks reversed the previous session gain, thereby extending the two months of correction and profit-taking in the midst of impressive corporate earnings and prevailing economic uncertainties.

The benchmark NGX All-Share index in the month of August for 24 years as revealed by historical data had suffered a decline of 17 years and gained in only seven, indicating how dicey the month has been in all of these years.

In the same vein, pre-election year market performance has been mixed as 1998, 2014 and 2018 were down, while 2002, 2006, 2010 and 2022 year to date has recorded up market, giving investors an insight as to what should be expected in the new month and rest of the year.

Monday’s trading session recorded an above-average traded volume and positive market breadth as blue-chips companies and low priced stocks witnessed buying interest on the strength of their Q2 earnings released recently. These better-than-expected earnings are yet to impact, or reflect on the prices of equities as expected due to the prevailing low liquidity as a result of high interest rate, just as institutional investors are still digesting these numbers.

The NGX earnings reporting season is gradually coming to an end with impressive corporate numbers that beat market expectation while some earnings were mixed, just as others were equally disappointing, especially medium and low cap stocks. The earnings performance of companies that comprise the NGX-30, which has supported the market rally before now, offers investors and traders an insight into the general mood, just as Price/Earnings ratios of most companies on the exchange revealed their underpriced state, with higher upside potentials to attract liquidity and positive sentiment.

In all these, there have been selloffs in some stocks, hence the need for investors to navigate the market now that many equity prices look cheap in the strength of impressive earnings and relatively low prices. The market cycle of a bear situation and market bottom in the face of technical pattern of oversold market or individual stocks signal that a reversal is underway, as bargain hunters take advantage of the pullbacks to reposition their portfolios.

The market remains below the 50,000 mark, trading below the ‘T line’ and 50-day moving average, to attract bargain hunters as sector rotation and portfolio rebalancing increased amidst the scorecards of many companies in the market. It is therefore time to use technical tools, if you have been ignoring the charts and fighting the trends, it is your chance to step up your game. At this current market mood, investors and traders should target leaders in the various sectors with strong fundamentals, and positive technicals as the market reversal is underway depending on the earnings power.

To navigate the month profitably using fundamental and technical analysis to run, join investdata live sessions at noon every trading day “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 range market. Despite the mixed sentiment witnessed, it is time to go shopping for undervalued stocks, sectors and the next insider playing opportunity.”

Technically, the NGX index’s action is on its distribution phase amid selloffs in high cap stocks and cautious trading due to low liquidity as result of high interest rate. The daily index and price actions will give direction as to what we should do and expect in Q3 looking at improvement in private sector manufacturing report from Stanbic IBTC that shows PMI was up in July to 53.2 point from 50.90 points in June, just as more insights into the entire second half will being unfolding. Market recovery at this point may be powerful, depending on the level of liquidity as corporate numbers had already showed sectors and industry to look at, as portfolio rebalancing and sector rotation continue.

Oil prices pulled back again to trade at $100.10 per barrel in the international market, amid the fear of a recession, following the low factory activities in China, Japan and others that now signal demand fear, made worse by the weakened GDP in the US that may push the world’s largest economy into a technical recession. Already, central banks across globe have continued to hike rates in the fight against rising inflation, in the midst of a sluggish economic growth data from China and others. All these have continued to influence the monetary policy options of central banks as they move to checkmate the impacts of the Russia-Ukraine conflict on the global economy to avoid the looming economic recession.

In the domestic environment, Nigeria’s soaring inflation is a potent threat to the fixed income market and investment yields, which should be an indication that there will be a reversal of funds flowing back to equity space in no distant time, as institutional investors rebalance their portfolios.

Meanwhile, Monday’s trading opened sharply on the downside and was sustained throughout the trading session on selloffs in BUA Cement and other blue-chip stocks, a situation that pushed the NGX’s index to an intraday low of 49,886.94bps from its highs of 50,372.43ps before closing sharply below its opening figure at 49,950.32bps.

Market technicals were positive and mixed, with lower volume traded than the previous day in the midst of breadth favoring bulls on selling sentiment as revealed by Investdata’s Sentiments Report showing 13% buy position and 87% sell volume. The total transaction volume index stood at 0.90 points, just as impetus behind the day’s performance was weak as Money Flow Index is looking down at 22.03pts, from the previous day’s 27.28pts, indicating that funds left the market.

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Index and Market Caps

At the close of trading on Monday, the composite NGX All-Share index shed 419.93bps, closing at 49.950.32bps, after opening at 50,370.25bps, representing a 0.83% decline. Similarly, market capitalization fell by N226.45bn, closing at N26.94tr, from the previous day’s N27.16tr, which also represented a 0.83% value loss.

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Monday’s downturn was driven by selloffs in BUA Cement, UACN, International Breweries, May & Baker, FBNH, Accesscorp, and Fidelity Bank, among others, which impacted negatively on Year-To-Date gain, dragging it to 16.93%. Market capitalization gain YTD also fell to N3.52tr YTD, representing a 20.81% rise over the opening level for the year.

Mixed Sector Indices

Performance indexes across sectors were mixed, with the NGX Banking and Insurance closing 0.19% and 0.12% higher respectively, while the NGX Industrial Goods led the decliners after losing 4.18%, followed by Consumer goods with 0.13%. As Oil/Gas closed flat.

Market breadth, however, remained positive as gainers outnumbered losers in the ratio of 21:13; just as activities in volume and value terms were down, after stockbrokers crossed 176.05m shares worth N2.27bn, with volume driven by trades in GTCO, Zenith Bank, Accesscorp, FBNH and UBA.

Caverton and Courtville Business Solution were the best-performing stocks, after gaining 10% each, closing at N1.10 and N0.44 per share respectively on market forces. On the flip side, BUA Cement and Neimeth Pharm lost 9.96% and 9.68% respectively, closing at N62.40 and N1.40per share, purely on selloffs and profit taking.

Market Outlook

Expect a reversal on bargain hunting and reaction to impressive half-year financials of companies in the midst of sovereign risks, as interim dividends are expected from the first tier banking stocks. We note also the flow of funds into the fixed income segment on the rate hike by the CBN, as sector rotation persists. Analysts are also focused on the lookout for Q2 GDP and flow of funds amid oil prices oscillation. 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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Ambrose Omordion

CRO|Investdata Consulting Ltd

Tel: 08028164085, 08179547605