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Nigerian stocks witness an epic fight between long-term structural bulls looking to hedge against inflation with equities and tactical desks looking to bank big YTD returns.
The ASI sits just under all-time highs (254,067) and flirts with the 234,178 levels – with more to come when 241-245k is taken out on solid volume.
The bulls fought hard to defend a solid double-bottom floor on the 224,285 support lines amid a sharp mid-year profit-taking correction in recent weeks; triggering a violent +2.15% reversal on the session to claw back the 234k territory.
Markets need a clean break and close above the 241k-245k levels to re-ignite the multi-year run in earnest. Companies’ earnings reveal the stark disparity in how firms have leveraged macroeconomic tides versus being trampled by them, amidst ASI surging with a 50% YTD gain.
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Fundamental support for the NGX is robust yet selective, as there appears to be no room for broader market index trackers, and outright outperformance will require targeted long bets on heavily asset-weighted sectors, directly aided by tight monetary policy.
Tier 1 banks and oil game players like Seplat and Aradel are reporting eye-watering nominal earnings. High interest rates are helping banks mint an all-time high net interest margin, while their FX-denominated energy revenue shields their energy peers from local economic headwinds.
Consumer goods & FMCG face headwinds amid surging input and transportation costs, along with local margin pressures, are taking a toll on consumer counters. The Banking Index continues to rally, but the consumer sector is lagging behind the rally.
The naira’s stability helped to guarantee a formidable 31 per cent in dollar terms, attracting the eyes of a vast pool of foreign portfolio investors. FPIs, however, do not stay for long.
Once they detect that a structural resistance has emerged on the exchange rate front, they do a quick damage control by taking profits, and the stock market liquidity then dries up at speed when external macro forces reverse their exposure.
Nigeria’s Central Bank (CBN) timed banking recapitalization hard deadline is the dominant net positive in equity volumes presently, with major institutional investors in GTCO, Zenith, etc. aggressively re-aligning balance sheets, pulling large chunks of retail and local institutional capital into the high-yielding financial sector.
There really isn’t anywhere else local Asset Managers can effectively dump cash – OMO bills and Fixed Income are already soaking up liquidity as Nigeria’s inflation remains highly restrictive and the Naira is under severe real-term devaluation, with Equities now the only serious way to chase positive real returns.
Rebalancing of top indices (NGX-30) necessitates passive funds and PFA’s swap cash from less stellar names into top movers like NASCON, Unilever – this forces institutional buying at any dip attempt.
The entire Nigerian capital market is holding its breath for the giant Dangote Refinery IPO – as a massive amount of cash will be required from institutional funds to take part in the listing, some ‘non-core’ equity names will be unwound selectively over the next weeks, creating sharp, very tactical, trading entry windows for premier blue-chip stocks.
