Latest Market activity in the Nigerian stock market shows a cool-off after a hyper-explosive rally.
The Nigerian major equity market rallied over 55% in the first six months of the year, with the All-Share Index already surpassing all-time highs, while market cap crossed N160 trillion.
There’s a market retracement, not a structural breakdown.
The All-Share Index has retreated approximately 4% from its highest peak to hover around 240,800 index points.
Corporate fundamentals on the NGX remain attractive and strong, but uneven despite the present pullback, strongly supported by the current macro stabilization strategy.
Long-standing, multi-year performers like Presco Plc, Okomu Oil Palm have continued to be multi-year gainers even in recent day trades with single-day pullbacks. Their dominant inflows in the long run stem from their commodity/export nature, which hedges against naira fluctuations.
Large-cap domestic market players like Dangote Cement, BUA Foods, and MTN Nigeria are trading flat or consolidating, which explains the current consolidation phase. Financial institutions have come under fresh selling pressure, whereas sharp profit-taking occurred in select key energy drivers like Geregu Power.
The bourse still trades on an attractive Price to Earnings Ratio of 6.92x, even with the all-time surge on the NGX. It’s well below the 10-year average of 11.3x, and significantly lower than regional stock markets (South Africa: 16.2x) and the frontier markets index (11.5x).
Classic profit-taking institutional investors and tier-1 banking stockholders take out huge year-to-date gains, and the high fixed-income yield rate offers a safer haven for local fund managers for risk mitigation. Severe volatility caused by forex over the past years that squeezed profits has subsided, and the Nigerian Central Bank (CBN) has already restored predictability by managing foreign currency liquidity.
Upstream and industrial segments are experiencing a significant upsurge in operational revenue, coupled with disciplined cost management.
The Nigerian banking industry remains in a high-profit zone owing to a sustained high-interest-rate environment, although the banking sector recapitalization exercise and the latest news on Holdco reforms are keeping Nigerian banking stocks somewhat unsettled.
Nigerian consumer goods stocks remain under relative pressure. While there are signs of a top or slowdown in inflation trends, poor consumer affordability at the mass market still squeezes consumer tickers in that segment.
The medium-to-long-term prospects look good, owing to a permanently elevated corporate earnings power profile.
Markets expect subsequent corporate earnings results to underpin valuations. When corporate results meet or exceed forecasts, PE multiples should decrease further, presenting an even more attractive entry point.
PFAs and other domestic money managers are still slowly increasing their participation in the equity markets, serving as a strong floor under excessive downtrends.
Technical action
The latest market action shows resistance levels stationed at 245k – 247.5k level. The market failed to hold above 247k multiple times in early June, and each attempt to break higher was met with very aggressive profit-taking. A breakout above 247.5k level with conviction and volume should affirm a continuation of the primary bull trend.
A breakout above the 254k level would signal continuation into a new leg of price discovery. Support levels are now at 240k. The current support test is at the psychological level of 240k. Defence of this level will be important for shorter-term swing traders to buy on a pullback.
Ideally, should the market break below 240k, this zone presents the optimal structural demand block, which saw significant institutional buying. 214k – 220k (Deep retracement base): A buffer for the worst-case scenario. Finally, the macro-bullish channel stays completely intact as long as the index maintains a position above 220k.
