Investors Pitch Tent With Banking Stocks On Higher Dividend Prospect

Market Update for January 23
Midweek’s trading on the Nigerian Stock Exchange (NSE) was an ‘up’ day to extend the previous session’s positive momentum on improved traded volume and improved demand for stocks, especially banking, as players digest the decisions reached at the first meeting of the Central Bank of Nigeria (CBN) Monetary Policy Committee (MPC) which ended on Tuesday.

A highlight of the meeting was that members noted the steady decline in the non-performing loan (NPL) portfolios of banks and the fact that this can only get better especially when the Federal Government begins to meet its obligations to contractors, many of which obtained facilities to execute one job or the other. The decline in NPLs of the banks, according to Godwin Emefiele, MPC chairman and CBN Governor, is expected to impact 2018 financials of banks, a situation that may be responsible for the renewed interest in banking stocks, given that the bad loans previously written off as bad and doubtful will be written back and consequently help swell profit (READ MORE).

Trading session for Wednesday started out with a move to the upside, which was sustained till afternoon to close positively with good technicals that held support, before bouncing back sharply again. The benchmark NSE All-Share index touched intraday high of 30,880.67 basis points, from a low of 30,736.88bps, before closing at 30, 878.56 on a positive breadth.
Expectations are that one of the major headwinds that pulled down the market since march 2018- the February 16 presidential election, will soon be off the table, given that others like the economic environment would be shaped by economic policies and it implementation.

Midweek’s market technicals were positive with higher volume traded than previous day’s in the midst of a positive breadth and high buying pressure as revealed by Investdata’s Daily Sentiment Report, showing buy volume of 99% and 1% sell position. Volume index for day’ was 1.08
The impetus behind the day’s market performance was up, despite the low liquidity as reflected in the 43.26bps money flow index, from previous day’s 35.57bps, an indication that funds are entering the market and some stocks.

Index and Market Cap
Trading ended with the All Share Index gaining 141.68bps, to close at 30,878.56bps after opening at 30,736.88bps, representing 0.46% growth; while market capitalization climbed N52.83bn up to close at N11.52tr from the opening value of N11.46tr, representing a 0.46% value appreciation.

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Wednesday’s upturn resulted from banking sector value gain, especially Stanbic IBTC, Guaranty Trust Bank and Zenith, among others, reducing Year-to-Date loss to 1.76%, while the loss in market capitalization dropped to N207.38bn, from the year’s opening level N11.72 trillion representing a 1.76% decline.

Mixed Sectors Indices
All sectoral performance indices were largely bearish, except for the NSE Banking that closed higher on positive sentiments for the sector equities, while market breadth remained positive, with advancers outweighing decliners in the ratio of 21:10. Market activity were up in volume and value by 52.97% and 21.47% respectively to 376.26m shares worth N2.97bn from the previous day’s 245.76m units valued by N2.44bn. Transactions were driven by financial services stocks: Access bank, UBA, FCMB, Zenith Bank and Fidelity Bank

First Aluminum and Fidelity Bank were the best performing stocks for the day, after gaining 9.68% and 9.57% respectively, closing at N0.34 and N2.29 per share on market forces, while the flipside was led by Resort Saving and Sovereign Trust Insurance, losing 8.33% respectively to close at N3.25 and N530 each, on market sentiment.

Market Outlook
We expect the mixed performance to continue in the midst of sustained volatility, as investors continue to reposition for 2019 dividend declaration season that will shape market performance after the elections. We advise cautious trading and investing why positioning in fundamentally sound equities.

The ongoing volatility will persist as investors and fund managers reposition their portfolios, with eyes fixed on political space and ahead of full year company earnings position and post-election market dynamics. These are likely to drive prices north, or south, while determining market direction before or after the Presidential Election.
Investors should review their positions in line with their investment goals, strength of the company numbers and act as events unfold in the global and domestic environment.

However, we would like to reiterate our advice that investors should go for equities with intrinsic value,
We advise investors to allow numbers guide their decisions while repositioning in any stock, especially now that stock prices remain low in the midst of mixed company numbers, weak economic and market fundamentals.

Ambrose Omordion
CRO|Investdata Consulting Ltd
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