Mixed Trend, As Investors React To Q3 Earnings, Position In Safe Bets

Market Update for the Week Ended October 15 and Outlook for 18-22

Nigerian equities closed higher in the week under review as the benchmark index extended its rally for the fifth successive week on very high traded volume and positive investor vibes that signaled great expectations from this earnings season month and the rest of the quarter.  These were attributed to expectation of more positive macroeconomic indices, after the September consumer price index recorded a further decline for sixth straight month to 16.63%, from the 17.01% reported by the National Bureau of Statistics for the month of August, just as the purchasing managers’ index recorded another expansion also during the month of September.

The actual state of the expected Q3 corporate earnings is expected to determine whether this positive sentiment among market players will continue throughout this season, considering the strong momentum and positive economic data that support the uptrend, as well as the ongoing recovery, even if weak or slow at the moment. As the markup phase continues to support the recovery moves in the market, this period calls for an effective combination of fundamental and technical analysis by investors willing to stay ahead of the market. Such investors must also be armed with a technical toolbox to help time the market and tell the entry and exit points, as well as trading chart patterns that would identify levels of breakout or breakdown. These technical tools are applied on the general market, sector rotation, and stock selection.

The NGX index’s action on a weekly time frame reveals a positive momentum of 100% investor sentiments, as well as ADX above 20point to read 26.51, just as the money flow index was up at 68.04 points to reveal the increasing money flow in the equity space. These are indications that confirm the daily move and volatility, as the NGX index is set to breakout new resistance levels of 41,781.10 basis points to 42,442.14bps and then confirm the continuation of the uptrend on the daily and weekly chart. So, we have to wait and see what happens in the new week, and ahead of more corporate earnings. Already, results from early filers- United Capital, Infinity Trust Mortgage, and Living Trust Mortgage beat market expectations by growing their top and bottom lines by more than 50%. 

The rise in transaction volume, during the week due to heavy trades in FBN Holdings and others are indications that smart money is gradually returning to the market after studying the latest macroeconomic data and happenings in the fixed income market ahead of earnings reporting season and year-end seasonality. Also, liquidity is returning to the stock market, with the reintroduction of market makers to provide liquidity to the bourse, just as the oil price is looking up at the international market to support the market and economic fundamentals.

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Movement Of NGXASI

It was a bullish week of four sessions of upmarket and one down market begin with the pullback by the NGX index on Monday, due to profit-taking before the market retraced up on increased appetite for banking stocks and positive sentiments across sectors. The composite index started the period on a negative note, which was short-lived on Tuesday as the benchmark index gained 0.45%. The positive outing continued at the midweek when the index notched a further 0.38%, followed by 0.19% and 0.75% on Thursday and Friday respectively, which brought the week’s total gain to 1.39%, compared to the previous week’s 1.61% positive position.

Consequently, the All-Share Index grew by 569.79 basis points, closing at 41,438.15bps, which incidentally was the intra-week high and a low of 40,596.58bps, from the week’s opening figure of 40,868.36bps on positive sentiments for low, medium, and high priced stocks. Market capitalization during the period rose by N328.96bn, closing at N21.62tr, compared to the previous week’s N21.30tr, which also represented a 1.42% value gain. The difference between the index and capitalization movement arose from last week’s successful listing of 1.96bn ordinary shares of 50 kobo each at N16.15 per share by way of introduction on the main board of the Nigerian Exchange Limited, in favour of NGX Group on Friday 15 October 2021.

The week’s top advancers’ table was dominated by low and medium-priced stocks which had become the toast of bargain hunters, particularly Champion Breweries, FBNH, Okomu Oil, Presco, International Breweries, and Honeywell Flour Mills, among others. This was due to the positive economic data and the continued repositioning of market players ahead of the Q3 earnings reports and Q4 seasonality. Also, the NGX Index and price actions revealed the presence of buyers in the market, a situation that reflects on the sectorial indexes.

Market breadth was positive on a very high traded volume to support the recovery and signal accumulation by investors, with gainers outnumbering losers in the ratio of 45:15, on positive sentiment as revealed by investors’ sentiment report showing a 100% buy volume. Money Flow Index rose to 68.04bps from the previous week’s 64.84 points, an indication that some funds entered the market.

NSEASI WEEKLY CHART MOVEMENT

NGX index’s action, on a daily and weekly chart, has formed a bullish inverted head and shoulder and saucer chart pattern respectively, that supports and indicates an uptrend as volume traded continued to rise. The candlestick pattern at the end of last week was equally bullish to represent strong buying positions, as the benchmark index maintained five consecutive weeks of positive outing to reveal a return of market players who had been sitting on the fence for a while. The index action has broken out its strong resistances of 41,014.19 and 41,248.16 and psychological line of 41,000 on renewed buying interest that supports uptrend. However, we need to watch out, as market players digest economic data, fixed income market yields, and oil prices that should further encourage market fundamentals to attract liquidity to the equity space. A pullback at this point will create new buying opportunities.

BullishSectoral Indices

The performance indexes across the sector were bullish, with NGX Banking leading the advancers after gaining 2.64%, followed by Insurance, Industrial Goods, Energy, and Consumer Goods with 1.6%, 0.98%, 0.64%, and 0.47% respectively. Activities in volume and value terms were also mixed, as players exchanged 2.84bn shares worth N25.21bn, compared to the previous week’s 2.18bnunits valued at N21.96bn. Volume was driven by Financial Services, Conglomerates, and ICT, particularly FBN Holdings, Universal Insurance, Fidelity Bank, Zenith Bank, and Transcorp.

Champion Breweries and FBN Holdings were the best-performing stocks during the week, after gaining 49.52% and 29.59% respectively, closing at N3.14 and N12.70 per share respectively on the back of plans by Raysun Nigeria, a subsidiary of Heineken BV, to buy out the minority shareholders, as well as the positive market sentiments. On the flip side, Learn Africa and Ikeja Hotel lost 17.42% and 7.89% respectively, at N1.28 and N1.05per share, purely share price adjustment for dividend and market forces.

Outlook for the week

We expect a mixed trend as investors react to the corporate earning so far released, even as we expect the release of more quarterly scorecards are made available and bargain hunters continue to take advantage of such price pullback in fundamentally sound stocks for positioning. It is also noteworthy that fund and portfolio managers continue to take positions ahead of the Q3 earnings season and year-end. For now, many stocks remain in 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 high volume suggests that institutional investors are entering the market and others. It is noteworthy that oil prices rebounded to trade above $82 in the international market; corporate actions, as well as the interim dividend possibilities, are around the corner.

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