Oil Price Rally May Propel NGX Rebound Ahead Of Q3 Earnings Season

 

Market Update September 23

The seesaw movement on the Nigerian Exchange continued Thursday as the composite NGX All-Share Index resisted decline, and thereby halting the three consecutive sessions of losses. Just as the index side-trended and pulled back gradually to create buy opportunities for discerning traders and investors who understand the dynamics of the market.

The NGX benchmark index closed marginally up, joining its global counterpart that recorded sharp gains after China urged Evergrander to pay its debts and avoid default, even as oil price rebounded to hit a two-month high at the international market, trading above $77 per barrel. This is happening as inventories fall, while central bank decisions are shaping the world economic recovery and trading environment.

Technically, the prevailing low volume traded and the seeming divergence between the NGX index action and MACD histogram suggests that markup by smart money is underway, which we wait to confirm during the trading session of Friday and next week. Thursday’s recovery move will be established when the index breaks out 38,906.80 basis points on improved traded volume and positive sentiment.

Meanwhile, Thursday’s trading opened slightly on the upside and oscillated for the rest of the session on selloffs and buy interests in medium and low-priced stocks. This situation pushed the NGX index to an intraday high of 38,889.58bps, from its lows of 38,848.18bps, after which it closed slightly above the opening point at 38,874.13bps on a low traded volume.

Market technicals were positive but weak as the volume traded was lower than that of the previous day with the positive breadth and mixed sentiments as revealed by Investdata’s Sentiment Report, showing 63% ‘buy’ volume and 37% sell position. The total transaction volume index stood at 0.59 points, just as the momentum behind the day’s performance was weak, with Money Flow Index turning up at 22.51points, from the previous day’s 17.90points, an indication that funds entered the market ahead of the quarter-end window dressing.

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Index and Market Caps

At the end of Thursday’s trading, the NGXASI gained a marginal 22.44 basis points to close at 38,874.13bps, representing a 0.06% up, just as market capitalization rose by N11.80bn, closing at N20.25tr, from the opening value of N20.24tr, also representing 0.06% appreciation in value.

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Thursday’s upturn followed position taking in PZ Cussons, Flour Mills, GTCO, Lafarge Africa, Oando, Stanbic IBTC, UBA, and Nahco, among others, which impacted mildly on Year-To-Date loss that drop to 3.47%. This was just as the cumulative loss in market capitalization stood at N801.42bn, representing a 3.80% decline from the year’s opening value.

Bullish Sector Indices

Performance indexes across sectors were up, except for the NGX Banking index that closed 0.19% down, while the NGX Insurance Index led the advancers, gaining 0.90%, followed by the Oil/Gas, Consumer, and Industrial Goods with 0.68%, 0.08%, and 0.01% respectively.

Market breadth turned positive, as gainers outnumbered losers in the ratio of 16:12, while transactions in volume and value terms dropped further after players exchanged 125.80m shares worth N1.27bn, compared to the previous day’s 155.77m units valued at N1.51bn. Volume was driven by trades in Mutual Benefits Assurance, UCap, GTCO, Zenith Bank, and Transacorp.

Nahco and Pharmdeko were the best performing, gaining 10% and 9.55% to close at N3.52 and N1.95 per share respectively on market sentiment and forces. On the flip side, Sovereign Trust insurance and UPDC lost 4.17% and 3.62% respectively, closing at N0.23 and N1.83 per share purely on profit-taking.

Market Outlook

We expect the rebound in oil price and calm returning to the global market after China had called on property company Evergrande to pay its debts and avoid default, just as investors and traders take advantage of shakeout to position ahead of quarter-end and Q3 earnings reporting season. Also noteworthy is the fact that many stocks are trading within their buy ranges, a situation expected to attract funds into the equity space, given the Dividend Yield capable of serving as a hedge against inflation.

Also, institutional investors and others continue to digest recently release economic data ahead of month and quarter-end, as well as the continued repositioning of portfolios for the year’s last quarter. 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. The day’s low volume suggests that institutional investors and others are still cautiously looking at the economic data and policy direction of the economic managers. It is noteworthy that oil price pullback in the international market; corporate actions, as well as the interim dividend possibilities, are around the corner.

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