The Nigerian major equity market has experienced a cool-off following a hyper-explosive rally. The Nigerian stock market rallied over 55% in the first six months of the year, with the All-Share Index surpassing all-time highs and market capitalization crossing N160 trillion.
This market retracement, not a structural breakdown, has seen the All-Share Index retreat approximately 4% from its highest peak to hover around 240,800 index points. Corporate fundamentals on the NGX remain attractive and strong, supported by the current macro stabilization strategy.
Long-standing performers like Presco Plc and Okomu Oil Palm have continued their multi-year gains, with their dominant inflows stemming from their commodity/export nature, which hedges against naira fluctuations. Large-cap domestic market players such as Dangote Cement, BUA Foods, and MTN Nigeria are trading flat or consolidating. Financial institutions have faced fresh selling pressure, and sharp profit-taking occurred in select key energy drivers like Geregu Power.
The bourse currently trades on an attractive Price to Earnings Ratio of 6.92x, even with the all-time surge on the NGX. This is 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 by institutional investors and tier-1 banking stockholders has taken out huge year-to-date gains. The high fixed-income yield rate offers a safer haven for local fund managers for risk mitigation. Volatility caused by forex over the past years has subsided, and the Nigerian Central Bank (CBN) has 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 reforms on Holdco are causing some unsettledness in Nigerian banking stocks.
Nigerian consumer goods stocks remain under relative pressure. While there are signs of a slowdown in inflation trends, poor consumer affordability still squeezes consumer tickers in that segment. The medium-to-long-term prospects look good, owing to an 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 a more attractive entry point. Pension Fund Administrators (PFAs) and other domestic money managers are 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 the 245k – 247.5k level. The market failed to hold above 247k multiple times in early June, with each attempt to break higher met with aggressive profit-taking. A breakout above 247.5k 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, with the current support test at the psychological level of 240k. Defence of this level will be important for shorter-term swing traders to buy on a pullback.
Should the market break below 240k, this zone presents the optimal structural demand block, which saw significant institutional buying. A deep retracement base is seen between 214k – 220k, serving as a buffer for the worst-case scenario. The macro-bullish channel remains intact as long as the index maintains a position above 220k.
