Investors look to early profit-taking, re-entry at lower price in February
Negative inflation may spark more selloffs across risk assets in global equities UBA, Access, UCAP, TotalEnergies, Guinness Nigeria, MTN Nigeria major picks for February
Nigerian equities market off to strong start again
It was a broad-based rally that showed up for reckoning in January in the local equities market as the benchmark index closed the month above the 46,000 psychological points with over nine percent month on month gains on the back of widespread corporate actions which brought about re-ignition of risk-on sentiments amongst equity investors.
Despite the positive and strong start to the year, equity analysts still shared their expectations for the new month as investors look highly motivated for early profit-taking activities in February, while they position to re-enter the market from the dip and at much lower prices for the stocks. Although, sentiments around equities may appear mixed in the month.
Equity analysts at Stanbic IBTC Stockbrokers note that there is the expectation that investors will play for dividend yields, while they will get attracted to the relatively cheap stock prices while some international investors’ participation may stay low within the first few days with major focus glued to the dual-listed stocks.
“We have been seeing economic improvements post the recession from indicators with PMI and GDP numbers improving. This economic improvement may likely have a positive impact on corporate earnings and may be potential catalysts for the market and may also possibly counter the dampened outlook for the market. From a valuation perspective, current prices in the market are also still relatively cheap and attractive. We also expect to see some investors make a play for dividend yields in the first quarter.”
But analysts at FSDH Research Capital, said, “In February, we expect sentiments around equities to be mixed. We expect traders and other investors will book profits in the first weeks of February following the strong rally in January. Potential marketmoving corporate actions will begin to drip into the market towards the end of February into March.
“Thus, for investors that have invested in line with our prior top picks, we recommend they begin to take profits off the table with a view to re-enter at lower price levels towards the end of the month. Technically, the equities market is in need of a breather with the NGX-ASI trading in an overbought region as the RSI indicator is currently at 78.7. In addition, the MACD indicator points to a slowing bullish momentum with a bearish divergence likely in the coming weeks. Thus, we reaffirm our position that investors should begin to take profits off the table with a view to re-entering the market at lower price levels,” they said.
Reflecting the broadbased rally witnessed in January and contrary to the developments across the global market, the Nigerian equity market opened 2022 on a very strong note as the benchmark All Share Index (ASI) gained 9.1 percent month on month to close the January at 46,624.67 points, while the market capitalization inched higher above N25 trillion driven largely by market reactions on BUA Foods listing by introduction on the NGX, the share buyback programme by Dangote Cement and the earnings report from a number of heavyweights, which lifted market sentiments and drove broad-based buying interest across the local bourse.
Across the sectoral front, performance was largely bullish with four of the five key sectors of the NGX-ASI closing the month higher while one closed southwards. The oil and gas sector was the lead gainer buoyed by strong buying interest which supported positive sentiments in Seplat Petroleum and the declaration of a strong FY-2021 unaudited earnings report by Total Energies.
Furthermore, the banking and consumer goods indexes continued with the positive rally following positive earnings announcements from Ecobank International, Fidelity Bank and Guinness Nigeria, which drove the sectors higher and rounding up the gainers’ chart saw price appreciation in BUA Cement and positive earnings report and gains in Dangote Cement on the back of the company’s share buyback announcement drove the industrial goods sector higher during the month. However, the insurance sector emerged as the lone loser during the month.
Global equities on monetary policy normalisation
Elsewhere on the global stock market, which is showing the opposite of the developments in the local equities market, it is predicted that investors’ attention will focus largely on earnings reports from major companies across the globe in February 2022 as equity investors hope to buy the dip of the market.
For FSDH analysts, they said “Looking ahead to Feb2022, investors’ attention will focus largely on earnings reports from major companies across the globe. Given that the next Fed as well as other developed economy central banks’ meetings are due for March, traders and investors alike will likely shelve the policy normalisation concerns. As a result, we advise investment decisions on global equities to be taken on a case-by-case basis as we expect market reactions to be based on the quality of earnings reported. Overall, we expect investors to buy the dip of the market in the early weeks of February but we expect a reversion to the risk-averse mode by the end of the month which could lead to renewed selloffs.
“From a technical perspective, the S&P 500 on a daily time frame shows the US equity market has managed to recover from a previously oversold region as investors took advantage of the recent selloffs to buy value stocks at attractive entry prices. We expect investors to continue to buy the dip of the market particularly if earnings continue to impress. However, we do not expect an extended bullish run as key data that may influence the Fed’s decision in March (such as inflation) could come in negative for the equities market, sparking renewed fear and subsequently selloffs across risk assets,” they concluded.
A snapshot of January’s activities saw that the trading began on a bearish note as investors aggressively sold off risk assets across the globe due to the possibility of risks associated with monetary policy normalisation as well as the Fed’s comments on plans to begin rate hikes faster than analysts had expected.
Contributing to the bearish sentiments, key growth stocks such as Netflix, Peloton, among others, delivered earnings that underperformed analyst expectations while also indicating weaker guidance for the first quarter of 2022. That said, heavyweights like Microsoft, Alphabet, Johnson & Johnson and Apple delivered blockbuster earnings that helped reinvigorate bullish sentiments towards the end of the month while the overall US market closed the month bearish with the S&P 500 DJIA and NASDAQ Composite closing the month lower.
Further afield into the European markets, developments were broadly similar to the global equity market narrative as fears of policy normalisation spooked investors, triggering extended selloffs across European equities. As a result of the trends of events from Germany’s GDP numbers, solid economic growth recorded in Spain and France, as well as the complicating policy outlook for the European Central Bank (ECB), the PanEuropean ST0XX 600 index closed the month lower by 3.9 percent. Similarly, country-specific indices such as Germany’s XETRA DAX (-2.6% m/m) and France’s CAC 40 (-2.2% m/m) closed the month lower. On the other hand, the UK’s FTSE 100 closed with a 1.1 percent month on month return, extending gains into the second consecutive month.