Slowdown Ahead, On Profit Booking, Portfolio Rotations, As NGXASI Returns 19.01% YTD

Market Update for May 5

The bull dominance continued on the Nigerian Exchange on Thursday as the composite NGX All Share Index closed higher on increased buying interests in telecom stocks and blue chips that posted impressive Q1 earnings, especially from consumer goods, agribusiness, industrial goods, and others.

Also, investors have continued to digest corporate earnings and the latest Purchasing Manager index that expanded for the month of April to 55.8 points from 54.1 points in March, according to Stanbic IBTC reports, indicating increased business activities in the private sector, despite the socio-political uncertainties, inflation, FX market challenges and the global geopolitical fears expected to slow down world economic growth.     

Consequently, the NGX extended its bull run for the 16th successive session, becoming the best performing market in Africa and third in the world, while creating wealth for investors, as prices of many stocks hit their new 52-week high. This has also pushed the market to its 15-year high on the back of strong positive sentiments, as stocks provide strong earnings yields for that offer protection against inflation.  

The bullish trend was attributed to investors’ accumulating low, medium, and high cap stocks across some major sectors, while the NGX index’s action has broken out several resistance levels on a wave-5 extension and high traded volume. Also notable is the fact that players are keenly observing what is happening on the nation’s economic front, in the face of a marginal uptick in the long-tenored Central Bank of Nigeria (CBN) Treasury Bills at the end of last week’s primary market auction.

The situation, however, was not sufficient enough to negatively impact the flow of funds from the equity space, as investors and traders seek to hedge against the spiraling inflation. Stakeholders are, however, anxiously awaiting the plans by the CBN to intervene in the petrol products sector, which as announced is 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.

As stated earlier, buying interest and positive sentiments continued on Thursday in the face of a high volume movement and increased positioning in blue chips on the strength of their earnings power. Tentatively, the continued mixed direction of fixed income market yields and TB rates may continue supporting the flow of funds into equities, on strong demand for stocks in this prevailing uptrend and positive sentiment amidst the ongoing war in Ukraine that has influenced the global markets in recent times.

Noteworthy also, is the rebound in oil price above $110 per barrel at the international market, resulting from the further EU embargo on importation of Russia oil, despite the increase in production output by OPEC after its meeting on Thursday, in the midst of a resurgence of the Covid 19 in some province in China that resulting in a continued lockdown in affected areas. The rising crude oil prices are pushing production costs up, heightening inflationary pressure across the globe on a weak economic outlook, thereby influencing monetary policies of central banks as they move to checkmate impacts of the Russia-Ukraine conflict on the global economy to avoid global recession. The uptick in domestic 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.

The strong momentum, buying interests, and increased liquidity at this point have created ‘buy’ signals for discerning traders as smart money makes efforts to push up the equity prices. However, we warn that market corrections are underway as a result of profit-taking, hence the need to rely on your stop-loss effectively at this point, even as the markup phase signals continuation, especially when the high cap stocks that control 70% of market capitalisation move up ahead of reactions to their earnings and expected dividend payments in May and June 2022.   

Thursday’s candlestick formation at the close of trading showed that buyers are still in charge, a situation likely to be a continuation of trends, or reversal, depending on market forces. The NGX index’s action sustained it uptrend, breaking out 50,720.58 basis points, while remaining in the markup phase, trading above the ‘T-Line’ and 20-day moving average. The market remains strong as it heads towards the strong resistance 51,050.10bps region level, while volatility persists and uptrends towards the next breakout sported around 51,000bps. Should the index break this point, the next visible resistance is 51,050.10bps.

Technically, the NGX index action has rallied on impressive earnings and strong demand for stocks. The possibility of the market sustaining this trend is high as a function of stronger corporate earnings and improved economic conditions during this season, following which we advise investors to play defensive stocks to reduce investment risks around the market.

Meanwhile, Thursday’s trading started on the upside and was sustained for the rest of the trading session on strong demand for blue-chips stocks, a situation that pushed the NGX’s index to an intraday high of 50.835.95bps where it closed, from its lows of 50,113.49ps.

Market technicals were positive and strong as volume traded was lower than the previous day’s in the midst of positive breadth and buying pressure as revealed by Investdata’s Sentiments Report showing 100% ‘buy’ volume. Total transaction volume index stood at 1.48 points, just as momentum behind the day’s performance remained strong with Money Flow Index looking flat at 95.58pts, from the previous day’s 95.36pts, indicating that funds entered the market.

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Index and Market Caps

At the end of the day trading, the benchmark NGXASI gained 709.54bps to closed at 50,835.95bps, after opening at 50,126.41bps, representing a 1.42% growth. Similarly, market capitalization rose by N382.52bn, closing at N27.41tr, from the previous day’s N27.02tr, which also represented a 1.42% value gain.

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This upturn was driven by accumulation in MTNN, Airtel, Okomu Oil Palm, Presco, NB, ETI, Fidson, Cadbury, Conoil, Guinness, Eterna, and Accesscorp, among others. This impacted positively on Year-To-Date gain, which increased to 19.01%. Market capitalization growth stood at N4.75tr YTD, representing a 22.17% rise over the opening level for the year.

Mixed Sector Indices

Performance indexes across sectors were mixed, as NGX Energy and Banking closed 0.51% and 0.08% lower respectively, while NGX Consumer goods led the advancers after gaining 2.36%, followed by Insurance and industrial goods with 0.87% and 0.12% respectively.

Market breadth remained positive, as gainers outnumbered losers in the ratio of 31:22; just as transactions in volume and value terms were mixed, as stockbrokers transacted 462.40m shares worth N8.31bn. Volume was driven by trades in FCMB, Zenith Bank, Transcorp, UBA, and GTCO.

Guinness Nigeria and Nigerian Breweries were the best-performing stocks for the session, gaining 10% each, closing at N110.00 and N69.05per share respectively on impressive Q1 earnings and market forces. On the flip side, Transcorp Hotel and Multiverse lost 9.09% and 8.70% respectively, closing at N4.50 and N0.21 per share, on profit taking and selloffs.

Market Outlook

We expect a slowdown in the uptrend on profit booking in the midst of sector and portfolio rotations as players digest the better-than-expected Q1 corporate earnings released so far, 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 economic data in relationship with 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, as 2021 Q4 GDP up at 3.98%, while the International Monetary Fund has projected the nation’s economy to grow by 3.4% on rising oil price in the international market.

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Ambrose Omordion

CRO|Investdata Consulting Ltd

Tel: 08028164085, 08179547605

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