Sentiments Stay Mixed As Investors Digest Latest Inflation Data, Bet On Strong Stocks Ahead Of MPC Outcome

Market Update for February    15

The Nigerian Exchange on Thursday extended its positive outing on a mixed sentiment as the composite NGX All-Share index closed higher as the nation’s inflation data hit an all-time high of 29.9% in January 2024 from 28.92% recorded in December. It is noteworthy that fixed income market yield recently surged in the name of attracting foreign portfolio investors at the detriment of the economy due to already high interest rate and rising inflation that have weakened the purchasing power and savings of Nigerians.

The NGX sustained the bull run for a second consecutive session on a low traded volume and negative market breadth following the price appreciation by BUA Foods, Geregu, BUA Cement and others, which supported the uptrend in the face of shaking rebound that was due to the double top chart reversal pattern. The index action remained within the consolidation range and distribution phase that will usher in a markup or decline phase, depending market reaction to January consumer price index reports. Also, there is the changing outlook in fixed income market, especially money market instrument rates that triggered the flow of funds out of other alternative investment windows, while portfolio rebalancing continued ahead of next week’s FGN Saving bond and TB auctions.

The latest inflation figure of 29.9% has justified the earlier disposition of the Central Bank of Nigeria (CBN) to hike its benchmark Monetary Policy Rate at the policy meeting scheduled for February 26-27 to checkmate the rising inflation. Analysts however argue that Nigeria’s heightening inflation is more of a structural problem, especially with the worsening depreciation of the Naira, leading to imported inflation and hike in food prices due to the high level of insecurity that has kept farmers away from their farmlands.

With this high inflation figure, expect rate hike from MPC meeting, even as the earnings reporting season enters it peak with dividend expectations, while market players continue to reassess opportunities in the financial market. Early filers will start releasing their full-year numbers any moment from now, along with dividend declarations to guide investors decision on yields and timing. The NGX index’s action retraced up, trading above the T-line, which signals uptrend but needs confirmation, as the current phase of the market remain somewhat  above the 20-Day Moving Average. The correction and mix trend in February will continue before another rebound on the strength of audited earnings reports and dividend season in the midst of FGN Savings bond, macroeconomic data and volatility.  The NGX witnessed mixed sentiments in the midst of continued sector rotation and portfolio repositioning, as ongoing oscillation create buy opportunities for dividend players ahead of company audited accounts. Investors should watch out for the value areas of resistances and supports levels as more earnings hit the market any moment from now. The index’s action has displayed a mixed picture as market players eagerly await numbers from the companies, following the optimism fueled by the belief that the impressive performance from the financial sector among others may impact the market positively. This is despite concerns about the changing fundamentals and growth prospect of the economy in the face of rising macroeconomic headwinds that will support a revaluation of assets.

The equity market is a leading indicator of the economy any time and any day, as such all eyes are still on the fiscal and monetary authorities for a clear direction of where the economy is heading, given developments in the global economy, especially the sustained geopolitical tensions in the Middle East and Eastern Europe. There is also the fear of a recession, among other issues that will continue to influence investment decisions, while driving volatility. The NGX index’s action remains above the T-line on daily basis in the midst of high volatility and mixed momentum to trade above the short and long term Moving Averages on the daily, weekly and monthly time frame. Portfolio rebalancing on the exchange continued in the face of earnings season and volatility.

The candlestick formation at the end of the trading session revealed a reversal or continuation of uptrend, depending on market forces which requires confirmation.  Therefore, market players should target companies with consistent track records of dividend payment, strong fundamentals and growth prospects that will support further growth in earnings which price feeds on in any market cycle. Technically, the index’s action is still at overbought state with bearish money flow divergent which a topping chart pattern that signal correction.

The momentum indicators signals a mix, as ADX continues looking down at  68.42, while RSI and Money Flow Index are mixed at 74.78 and 58.33 points against the previous session 73.84 and 59.55 points respectively. This should be a concern for investors and smart traders as they trade with caution because funds are still leaving the market. The trading volume pattern suggests hold and watch disposition of market players, as traders reduce position in some sectors in the face of others investment windows returns remain below inflation and negative.

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Oil price rebounded on Thursday to continue its oscillation, as it trades at $82.78 per barrel in the midst of weak US retail sales and dollar in the face of  escalating Middle East conflict. Coupled with the Ukraine and Russia war that had persisted in the face of inflation resurfacing again.  The rising geopolitical tension across the globe is also a major threat to many economies and the commodity market. Also, oil supply increase by OPEC and others impact oil price as it continued to oscillate. This trend may likely continue in 2024, this up and down movement of oil price also continues to drive volatility.

Meanwhile, trading opened in the upside and was sustained despite oscillating throughout the session on buying interests in highly priced stocks and  blue chip companies among others, a situation that pushed the NGX’s index to an intraday high of 104,475.10basis points, from its lows of 103,498.30bps, before closing above its opening figure at 104,100bps.

Market technicals for the session were mixed and weak, as volume was lower compared to the previous session in the midst of breadth favoring the bears on a mixed sentiment as revealed by Investdata’s Sentiments Report showing 62% buy position and 38% sell volume. The total transaction volume index stood at 0.38 points, just as impetus behind the day’s performance was relatively strong as Money Flow Index is  looking  down at 58.33pts, from the previous day’s  59.55pts, indicating that funds left the market, despite closing in the green.

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Index and Market Caps

The NGXASI at the close of trading gained 601.72 basis points, closing at 104,100.00 after opening at 103,498.28bps, representing a 0.58% growth, just as market capitalization rose by N329.25bn, closing at N58.63tr from the previous day’s N55.65tr, which also represented a 0.58% value gain.

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The upturn was driven by buying interests in the shares of  BUA Foods, BUA Cement, Geregu and CWG, among others, which impacted positively on Year-To-Date gain which inched up to 39.22%. Market capitalization YTD gain stood at N15.95tr, representing 39.23% above its opening level for the year.

Mixed Sector Indices

The sectoral performance indexes for the session were mixed, with the NGX Banking index closing 1.32% lower, while the NGX Industrial goods led the advancers after gaining 1.95% followed by Consumer Goods and Insurance with 0.22% and 0.18% respectively. Just as NGX Energy finished flat.

Market breadth turned negative with losers outnumbering gains in the ratio of 26:24, while transactions in volume and value were down after investors exchanged 284.49m shares worth N6.91bn. Volume was driven by trades in, GTCO, Transcorp, UBA, Mutual Benefit Assurance  and Mansard.

University Press and Juli were the best performing stocks, gaining 9.96% and 9.84% respectively, closing at N2.87 and N1.34 per share respectively on market forces and sentiment. On the flip side, Unilever and Julius Berger lost 9.80% and 9.64% respectively, closing at N16.10 and N50.60 per share, purely on selloffs and profit booking.

 Market Outlook

We expect mixed sentiment to continue as players digest January Consumer Price Index of 29.9%, profit taking and portfolio repositioning ahead of the fixed income market activities next week and audited corporate earnings with dividend expectations. This is amidst the volatility and upcoming policy meeting, while pullback at this point will add more strength to upside potential. As such, investors should take advantage of price correction. Also looking at the trends and events across the globe and domestically.

Ambrose Omordion

CRO|Investdata Consulting Ltd