Weak Momentum Still Amid Weak Earnings, Rising Fixed Income Yields Outlook

Market Update for the Week Ended March 1 and Outlook for March 4-8

It was another bearish week on the Nigerian Exchange as investors and traders continued reacting to the hawkish disposition of the Central Bank of Nigeria, as expressed in the decision of its Monetary Policy Committee last week which hiked the benchmark rates to new historic high. This was made worse by the coincidence of weak audited corporate earnings, accompanied with mixed payouts from some companies. While companies like Dangote  Cement grew its  dividend  payout for the year 2023 by 50% to N30 from N20 paid in 2022, competitors- BUA Cement and Wapco cut theirs by 29.8% and 5% respectively on mixed numbers. MTN Nigeria, Nestle Nigeria and Dangote Sugar posted negative earnings due to FX losses, as the outlook shows luckily that there is no going-concern threat for the companies. Mecure a newly listed company recommended 15 kobo dividend per share.

The higher and longer yields outlook in the fixed income market has changed the market dynamics and fundamentals, despite the runaway  inflation environment that call for a change in trading and investing strategies at this point to stay ahead of the market and profit from the new wave in the financial market. Sometimes subtle changes make a big difference, make it a point to track correlations between interest rates, equity indexes and foreign exchange because these can change market sentiment and direction any time.  Oftentime, the combination of consecutive sessions with severe price overlap, decresing volume, small candle bodies and below average ranges is an indication of trend exhasustion. When these componemt are identitfied, it is a warning to either take profits, hedge your trade to endure a consolidation phase or countertrade a trend.

All eyes are still on more earnings inflow, despite the mixed numbers released so far and index action at below the 100,000 psychological line after breaking down the strong support level of 100,582.90points that had turned a resistance level on a daily chart to trade below the T line on a low traded volume. Just as the market had entered its markdown phase on a weekly time frame in the midst of ongoing portfolio rebalancing and selloffs for safer alternative investment windows, despite the rising  inflation and economic headwinds which has been a concern for the investing public and businesses.

Technically, the nation’s equity market remains at its overbought state on a weekly time frame, amid calls for cautious trading even as sentiment reports for the period reveals selling sentiment of 99%, while MFI and RSI reads 82.85 and 74.57 points respectively looking down, but still above the T-line on a declining momentum. The  pullback and the negative breadth for the period were in the face of improved bargain hunting as dividend players took advantage of the correction to position dividend paying companies with strong fundamental.  As the ongoing government reforms are yet to put the economy on the path of recovery, or progress due to a mismatch of policies, and even somersault altogether.

Global stock markets extended strong momentum for the month of February and the week under review on cooling inflation and better than expected GDP figure in US and Europe. Coupled with impressive corporate earnings  across different domains, especially numbers from Tech companies and others that made their results available to the market. This impacted positively on  MSCI index  to close higher by 4% for the month and  0.8% for the week.  This upbeat is likely to continue in the new month and week, across  Europe, US, Asia and others on cooling inflation rates  and other factors that will impact the markets positively or otherwise.

Traders and investors should, therefore, wake up and trade intelligently and smart to avoid being trapped in any position, by combining fundamental, technical, sentiment and commsence analysis. This is no joke, it is exciting and scary time on the Exchange at the moment. Now is the time for action, if you must protect your investment, or capital by taking profit and targeting defensive stocks that are stable and established with strong/compact shareholding structures, relatively small outstanding shares, consistent in dividend payment and leaders in their sector or industry.

To navigate the rest of Q1 market volatility and its mixed outlook profitably using fundamental and technical analyses to run, join Investdata’s Live Sessions at noon every Mondays, Wednesdays and Fridays, 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 breakout of bullish channel to continue the markup phase. As volume of transaction witnessed within the week remain low traded volume, it is time to go shopping for undervalued stocks, sectors and the next insider dealing opportunity.

Oil price sustained  weekly gain as it trade at $83.55per barrel following the  stronger than expected US GDP and cooling inflation in the face of  improved PMI across regions and OPEC’s  likely to extend production cut till April. Major central banks of the world continue to watch the mixed macroeconomic data emanating from different domain amid the lingering tensions in the Middle East and disruption in oil output and demand outlook. Just as Russia-Ukraine war has lingered over two year now, and is indeed escalating. The up and down movement of oil prices also continues to drive volatility across different investment windows.

Movement Of NGXASI

The NGX’s negative sentiments continued for the second consecutive week, as the MPR hike, though expected, the magnitude seemingly rattled  investor confidence in equities. This was amidst the unimpressive corporate earnings, portfolio reshuffling and repricing in the fixed income market  that pushed the market further south. The NGX Index’s action for the week recorded one day gain and four trading sessions of losses, fuelled by selloffs in highly priced stocks and others, on a low traded volume in the midst of selling sentiments and volatility, ahead of more audited earnings and  corporate actions.

The week,’s trading started on negative note, halting previous gains after sliding by 0.09% on Monday. This trend was sustained on Tuesday and midweek when the index shed 1.39% and 1.31% respestively, following reactions as the MPC members  jerked the policy rate by 400 basis points to 22.75%. There was a rebound on Thursday  when the NGX All-Share Index gained 0.72%, which was shortlived as the index fell 1.23% on Friday, as the benchmark index fell by 1.23% as investors reacted to negative earnings from MTN Nigeria and weak full-year results of BUA Cement, despite the N2.00 dividend recommended. This brought the week’s total loss to 3.27%, in addition to the previous week’s 3.44% negative position.

Consequently, the composite index shed all of 3,336.32bps closing at 98,751.98bps, from previous week’s 102,088.30bps closing level. It touched an intraweek low of 98,708.14bps and a high of 102,340.40bps. Market capitalisation also fell  by N1.83tr to N54.04tr, representing a 3.27% drop in value.

The day’s top advancers’ chart for the period was dominated  by low and medium cap companies in the midst of selling sentiment and position taking in stocks that had pulled back in recent time. Also notable was the fact that market players are still trading with caution, as they reducing  their position in some sectors and stocks  ahead of their earnings reports and unfolding events in the monetary and fiscal arena.

Trade metrics for the period were negative and mixed as losers outnumbered gainers in the ratio of 54:27 on a selling sentiment as revealed by investdata sentiment report showing  1% ‘buy’ volume and 99% sell position. Money Flow Index was down at 82.85 points  from the previous week’s 88.32points, an indication that funds left  the market on a weekly time frame.

Technical View

The NGX index’s action pulled back further, breaking down the psychological line of 100,000 and strong support level of 100,661.00 to usher in the decline phase on the weekly chart. We noted that the 100,000 mark has turned a resistance level on the daily time frame. The market is at critical zone as all eyes are on the financials to support market fundamentals and attract inflow again. Also, we note that investors are taking long-term positions in the face of pullbacks and volatility.  Amid position taking by dividend investors now increasing their holdings  in the midst of a bearish outing.

We note also that sellers are in control, as reflected in the  negative market breadth, even as the index is trading above the 50-Day Moving Average on the weekly time frame.

Bearish Sectoral Indices

The sectoral indexes for the week closed red, led by the  NGX Industrial Goods which lost 3.87%, followed by Insuarnce, Consumer Goods, Energy and Banking with 3.40%,2.62%,1.55% and 0.69% respectively.

Transactions in volume and value were up as investors exchanged 1.88bn shares worth N34.15bn, compared to previous week’s 1.38bn units valued at N31.58bn. Volume was driven by Financial Services, Conglomerates  and Energy stocks,  boosted specifically by Transcorp, UBA, Accesscorp, GTCO and Zenith Bank. Interest in Transcorp may have been fired by the ongoing reported plans to unbundle and list its Power subsidiary on the NGX.

The best performing stocks for the week were Juli Pharmacy and PZ which gained  60.26% and  27.36% respectively, closing at N3.75 and N33.75 per share on market sentiments. On the flip side, MTNN and Sunu Assurance lost 18.91% and 18.18% respectively, at N200.70 and N1.71 per share, following the negative earnings and profit taking respectively.

Outlook for the week

We expect the mixed sentiment and weak momentum to continue on the back of the unimpressive corporate earnings and higher yields outlook in the fixed income space. Bargain hunters are also taking advantage of the pullbacks to buy into dividend stocks. Investors are watching with rapt attention as the government takes steps to resolve the country’s lingering FX challenges which has thrown many companies into a negative earnings postions.

However, retracement to the 94,000bps level and below is possible on correction as global and domestic events unfold.

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