Reversal Ahead On NGX, As Investors Position On Pullback, MPC Outcome

Market Update for the Week Ended Sept 17 and Outlook for September 20-24

Last week was packed full of activities that influenced the Nigerian Exchange benchmark All-Share index action with mixed trading and trend to close the period marginally positive on a low traded volume and negative breadth that halted the previous weeks of bear-run while calming the fear of a possible hike in Treasury Bill rates. During the week also, data from the National Bureau of Statistics (NBS), showed a further mild decline in inflation rate for the fifth consecutive month, just as the Central Bank of Nigeria’s Monetary Policy Committee held its regular meeting, with members voting to hold all the monetary policy instruments unchanged. This was to ensure the relatively low cost of funds necessary to support the ongoing national economic recovery.  Given the positive economic data and news from the flat TB offer rates, and MPC meeting outcome, we expect a breath out from the market ahead of the month and quarter-end window dressing and portfolio reshuffling to drive price and general performance.

As events are unfolding, this is the time for investors to rethink and change their trading strategies by looking at the way of companies that depend less on imported raw materials, or have done full backward integration. The ongoing development in the foreign exchange market is likely to affect the performance of companies, especially those engaged in manufacturing and that depends mainly on imported raw materials.

The low traded volume for the week is an indication that investors are seating on the fence, while funds exit the market, as revealed through the weekly money flow index and other investment windows compete for these funds. It is also worth noting that this is happening on the back of the ongoing devaluation that has seen the Naira at almost N600/$1 in the black market, a situation the CBN is trying to address with the plan to unveil the eNaira on October 1.

Last week also, Governor of the CBN, Godwin Emefiele, while fielding questions during the presentation of the communiqué issued at the end of the MPC meeting, accused AbokiFX, an online currency data platform of crashing the Naira, by posting false exchange rates and carrying out an illegal activity that undermines the economy. As part of strengthening the Naira at the FX market, the government would drive strong industrialization that supports export, especially the production of cash crops and others for export to earn more forex. We also expect that the CBN would further improve liquidity in the FX market and relax the restriction of $100/month for FX transactions on naira debit cards for legitimate foreign transactions.

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Movement Of NGXASI

NGX index action opened the week on a negative note, extending the previous week’s negative outing on a low traded volume to form an inverted hammer candlestick, reversing up on Tuesday when it gained a marginal 0.08%. This trend was sustained at midweek when the composite index recorded a 0.14% growth before pulling back on Thursday with a 0.17% loss but rebounded on Friday on the decision of the MPC meeting to retain all monetary policy instruments unchanged.  These brought the week’s cumulative gain to 0.06%, compared to the previous week’s 0.86% loss.

In all, the key performance index gained 22.09 basis points, closing at 38,943.87bps from its opening level of 39,921.78bps, after touching an intra-week high of 38,968.34bps from its lows of 38,858.01bps on mixed sentiments in highly-priced stocks and buying interests in medium and low cap equities. Also, market capitalization rose by N11.14bn, closing at N20.29tr, compared to the previous week’s N20.28tr, which also represented a 0.05% in value gain, with the difference resulting from the price adjustment in Access Bank for the 30 kobo interim dividend declared by its directors.

As usual, medium and low-priced stocks dominated the advancers’ table for the week, with investors positioning in UPDC, United Capital, Vitafoam, NNFM, Learn Africa, Fidelity Bank, Nahco, and Honeywell among others. This was due to continued repositioning of portfolios amid the market corrections and pullbacks on selloffs and profit-taking. Index and price actions revealed the presence of buyers in the market, a situation that is yet to reflect on the sectorial indexes.

Also, during the week, CAP listed additional 88.26m shares, resulting from the just concluded merger with Portland Paints bringing the company’s total share outstanding to 788.26m units.

Market breadth for the period was negative on low traded volume to resist the decline and signal the wait-and-see attitude of traders, with losers outnumbering gainers in the ratio of 38:21, on positive sentiments as revealed by investors’ sentiment report showing 78% ‘buy’ volume and 22% sell position. Money Flow Index dropped slightly to 57.32bps from the previous week’s 63.36 points, an indication that funds left the market.


NGX index’s action has formed a hammer candlestick after two successive weeks of decline to reveal the possibility of a reversal in trend in the new week, as the index action remained within a consolidating rectangle and on a strong support level.  The candlestick formation indicates the return of strength as bargain hunters buy in the pullbacks, but we need to watch out, as market players digest economic data, fixed income market yields, and outcome of MPC meeting that should further support market fundamentals to attract liquidity to the equity space.

Bearish Sectoral Indices

All the sectorial performance indexes were down, led by the NGX Oil/Gas which lost 3.35%, followed by Banking, Insurance, Industrial and consumer goods with 0.79%, 0.58%, 0.24%, and 0.21% respectively. Transactions in volume and value terms were down, with investors exchanging 856.29m shares worth N10.75bn, compared to the previous week’s 1.43bn units valued at N13.07bn. Volume was driven by Financial Services, Consumer Goods, and ICT, particularly Access Bank, Universal Insurance, Wema Bank, Zenith Bank, and GTCO.

UPDC and United Capital were the best-performing stocks during the week, after gaining 11.80% and 11.25% respectively, closing at N1.80 and N8.90 per share respectively on positive market sentiments and forces. On the flip side, SCOA and Transcorp Hotel lost 18.46% and 10% respectively, at N1.06 and N4.50per share, purely on selloffs and profit-taking.

Outlook for the week

We expect a mixed trend as bargain hunters take advantage of pullbacks in fundamentally sound stocks to position, just as players digest August inflation data, TB primary market auction rates, and the outcome of last week’s MPC meeting. As many stocks enter their buy range to attract funds into the equity space.  Also, investors are still observing the interplay of forces in the FX market as the CBN gives a guideline for the new digital currency platform. Last week’s low volume suggests that institutional investors are yet to enter the market and others are still trading with caution. It is noteworthy that oil prices rebounded to trade above $71 in the international market; corporate actions, as well as the interim dividend possibilities, are around the corner.


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