ANALYSIS: Stock Trading in May Leaves Investors N1.8tr Richer, But June Outlook Dicey

By Ambrose Omordion, Chief Research Officer at Investdata Consulting Ltd

Trading on the last day of May 2023 on the Nigerian Exchange Limited closed positive, further helping the month to once again defy the “sell in May and come back in October” mantra among stockbrokers for the fourth time in the past five years. The positive gain was supported by insider dealings among companies as directors and related parties consolidated their positions in a show by such investors of their belief in the inherent values of such companies, as well as positive reactions to the policy statement from the new government after a successful transition of power to President Bola Ahmed Tinubu by his immediate predecessor, Muhammadu Buhari after an eight-year stint.

Despite the profit taking and selloffs witnessed within the period, the benchmark NGX All-Share index halted two previous months of losses, as it rallied to a 16-year high on a ‘buy’ sentiment, amidst selloffs and price corrections.

There was position taking in the last few trading months of the pre-election year after the market had suffered losses for straight five months on the back of rate hikes by the Central Bank of Nigeria (CBN). There was however a rebound in November which ignored the hike in Monetary Policy Rate (MPR) in that month, apart from uncertainties relating to the elections, especially regarding the positive disposition of the presidential candidates of the major political parties to the market and economy, despite the weak economic data, rising inflation and insecurity across the nation. There were also the better-than-expected corporate earnings, higher dividend payouts and relatively improved liquidity as fixed incomes yields were not stable in the face of heightening inflation which supported buying interests in the market and flow of funds into the equity space.

The high traded volume and positive sentiment during the month reflected the buying interests by majority shareholders and activities of institutional investors as they sought to hedge against inflation on mixed outlook for fixed income rates and yields. This followed the fact that the Q1 performance of many quoted companies beat inflation rate, raising hopes of better earnings that will support price and payout at the end of the financial year, if government implement their policies that will drive the economy.

Given the outcome of the Monetary Policy Committee meeting in May, the prevailing mixed economic data and corporate earnings now looking up, we envisage a continuation of the big trend with more March year-end companies hitting the market with their audited earnings reports and mixed market performance in June. There are also half-year interim dividend and earnings season underway in Q3, besides the fact that crude oil is trading around $73.44 per barrel, after touching high of $90 at the beginning of 2023.

Investdata Research projects that the Nigerian equity market’s benchmark ASI would close the year 2023 on a positive note, despite the post-election adjustment, changing policies of the new administration, and the ongoing war in Ukraine that continues to threaten the global economy, with commodity prices vacillating helplessly. The positive performance in the month is an opportunity for discerning investors and traders to cash out and reposition in the new month after the pullbacks ahead of the half-year earnings season in July.

Since investment or trade is against expectations, let your objectives guild your entry and exit decisions, just, as the market continues its mixed trend and performance into the last month of Q2 and ahead of Q2 numbers. The way certain stocks and sectors are right now may lead many investors to believe that a breakdown trend is setting up, which could be the case but reversal is underway after correction. The month of June in recent years had recorded downtrends over the past five years, closing southward in four years and north in just one year with a slight gain.

The candlestick pattern that represents the month’s trading activities shows that buyers are still in control, while technically forming a double top that supports pullback or a breakout depending on market forces in the new month. This may signal the beginning of a short bear-run in the new month, depending on sentiment in the market.

The NGX recorded 21 trading sessions during the month under review with 15 up markets, and six down, closing on a positive note with the composite NGXASI ranging. The benchmark NGXASI gained 3,365.77 basis points during the month at 55,769.28bps after breaking out the strong resistance levels of 53,000bps and 55,748.30bps, from its 52,403.52bp opening level, representing 6.42% growth in the period.

The buying and selling volume of total transactions for the month were 99% and 1% respectively, halting the previous months’ down market, as volume index for the period stood at 1.94, while market capitalisation recorded N1.83tr gain, closing at N30.37tr, from an opening value of N28.53tr, representing 6.42% appreciation in value. The market had a buying sentiments for blue chip stocks, highly priced and others on Q1 scorecards, mixed economic data released and policy statement of the government, as investors and analysts continue to interpret the numbers and digest the likely impact of these policy outline of the government. The month’s traded volume was up by 18.57% at 12.45bn shares, from 10.50bn units in the previous month. Just as NGX index’s year-to-date gain position stood at 8.82%.

Market breathe in the month of May was strongly positive as gainers outpaced losers in the ratio of 88:15 to short live the bear run in the months of March and April, reflecting the buy interest across stocks and profit booking in large, medium and low cap equities. Also there was portfolio repositioning among players, on the strength of Q1 earnings reports which were impressive and higher than market expectations, especially from sectors as Agro-Business, Telecommunication, Energy, Consumer goods, Banking and Insurance. This is an indication that the current divergence in company earnings and share prices will not last.

Performance indexes across the sectors closed green except for the NGX Growth which fell by 9.88% as shown in the chart below. The activities in NGX Banking, NGX Oil/Gas, NGX Pension, NGX Main Board, NGX Oil, NGX Consumer, NGX Industrial and Premium stocks that pushed the market up in the period under review, as the composite NGX All Share Index was in the northward direction.

This was attributed to price appreciation after adjustment for dividend during the period and position taking by insiders or majority shareholders. Also, the impressive numbers emanating from different companies and sectors to inspired discerning investors to rethink and position early ahead of year end, amidst the relatively low Price-To-Earnings attraction in the market.

Best Performing Stocks for May

The top advancers in price gain for the month were kobo stocks, Low and medium cap companies, especially in ICT companies topped the month’s best performers, as FTN Cocoa, Chams, Ikeja Hotel, MRS Oil and CWG that continue to enjoy buying interests and positive sentiment, while the market still expects the Q4 audited accounts results from others companies. The stocks closed the month higher, after gaining 170%, 75% and 62.33%, 60.47% and 60% on their opening prices for the month respectively. It was followed by other stocks as shown in the table below.

Worst Performing Stocks for May

Low and highly priced stocks top the losers table in the month were insurance stocks and other medium companies, led by CHI Plc, which shed 24.64%, on the back of market forces and sentiment, while Chellaram was down by 18.78%, as investors react to the company’s mixed earnings release to the market. Royal Exchange Assurance declined by 17.86% on selloffs; C & I Leasing, 12.81%; and Airtel Africa, 6% on the back of market forces.

Technical View on Monthly Time Frame (See opening chart)

The NGX index action rallied to form a double top on daily, weekly and monthly charts, technically the market remains strong for month of May, but signal correction is underway by way of profit taking and mixed trend, just as the index entered a distribution phase, and at the same time resisting decline as revealed candlestick that supports reversal and continuation depending on market forces in the new month. The expected mixed trend as investors take profit and adjust their portfolios for repositioning ahead of second half of the year and Q2 numbers are likely to continue. The inflow of funds into equity assets as revealed by the money flow index supported the seeming uptrend, but a correction will add more strength for the index to breakout powerfully.

Where To Invest And Expectations For June and Second Half

The global economy and market remain mixed and dicey as Ukraine war and other factors are driving gloomy economic outlook across the climates continue, with the World Bank recently downgrading its economic growth outlook based on the ongoing Russia and Ukraine conflict that had disruption supply chain.

Back home, the seeming economic recovery and mixed indicators are likely to continue in the new month as we expect more economic data and new developments from the new administration policy statement and agenda confirm the real state of the nation’s economy as implementation of the 2022 and 2023 national budget continues. This will be helped by the CBN’s continued intervention in critical sectors to boost productivity needed to create employment and support recovery in the face rate hike and fuel subsidy removal by the government. Reasons for this are not far-fetched, given the impact of high cost of transportation, energy and insecurity in the system that is fueling inflation.

In June, we expect the release of May Consumer Price Index (CPI) by the National Bureau of Statistics (NBS) that would likely show that inflation is rising further; just as the Stanbic IBTC Purchasing Managers Index (PMI) reports for May is equally expected in this June. The nation’s GDP of 2.31% is still on a weak recovery mode to reflect the true state of the economy.

As corporate earnings reporting season has been extended to June and July for the few March, April and May year-end accounts, the fundamentals of these earnings and dividend declaration will support the ongoing positive outlook in market. Also, we note that many stocks have this month as their qualification and mark down dates, a situation that will keep the market oscillating, while all eyes are on policy action of the government.

Traders and investors who understand the importance of combining fundaments and technical analysis in making investment decisions in the stock market should take this opportunity to position in some sectors for medium and short-term gains, especially the banking, telecom, Industrial, agribusiness, service companies and consumer goods after a carefully study of recent numbers being made available to the market.

• What to expect in June and July
  Release of more quarterly and full year earnings. Earnings from blue-chip companies may strengthen market fundamentals in June.
  • Continuation of oscillating trend in equity prices due to portfolio repositioning along the line of positive numbers and profit taking. Also, the second half of this year will likely be dominated by positive sentiment on strength of government policy direction.
  • Market outlook for June is mixed but remains dicey, after the index defied the “sell in May and come back in October,” which may not be applicable in the current trend of our market that has changed in the last five years. In the Nigerian market, the month of June has been down in the current years. But with the impressive Q1 numbers so far; the oil price oscillating above $70 per barrel in the global market remain a plus for the market
  • The sustained low valuation in the market may trigger high demand for stocks as players realign their portfolios. However, there is need to invest wisely, using bids, offers and volume when taking decisions as a trader.
  • Managing risks and protecting capital at this point is very important, so you will determine when to buy or sell, by watching the stocks and the market, using technical analysis. Look for investdata daily sentiment timing report and home study video packs
  • Let numbers released by the companies guide your decision and time to stay in that position.
  • Full-year earnings reports of March year-end companies will start hitting the market until June.

As the market phase is changing, it is time to combine fundamentals and technical tools to take decision by knowing the support and resistant levels to reposition or exit any position. You must know the cycle it, or particular stocks therein are to successfully manage your trading and investment risk. For stocks that should be on your shopping list to buy in these seasonal changes as the year unfolds, sign up to INVESTDATA BUY AND SELL signal setup by calling 08028164085.