Recovery May Continue On NGSE, As Low Stock Valuation Attracts Investors
Tuesday’s was another interesting and very volatile trading session, as the Nigerian Stock Exchange (NSE) halted its two-day back-to-back losses on renewed buying interests driven by genuine market forces. It, however, signaled the gradual return of smart money to the market.
The low yield in advanced markets and continued amidst geopolitical concerns about North Korea and Iran, coupled with the lingering trade dispute between China and U.S, which have made emerging markets more attractive to foreign investors, especially given that many of these emerging markets are selling at their five-year lows, as recession-predicting yield curve inverted further, declining to -8.24 basis points.
Investors may be positioning ahead of the expected political stability in the next three years, cheaper valuations of Nigerian stocks, Monday’s signing of the 2019 budget into law, thereby enabling government to start disbursement of capital projects funds. We applaud the government’s Project Light House launched last Friday as the next phase of the Economic Recovery and Growth Plan (ERGP).
However, the country’s economic managers market must effectively change its implementation style to drive the economy in this new dispensation. We expect the new cabinet to come with fresh ideas that will inject life into the economic reforms policy, going forward.
NSE Index opened trading marginally lower in the morning but rebounded in the mid-morning on the strength of increased demand for high and medium cap stocks that made all the sectorial indexes rally up. This was after the composite index had touched intraday high of 31,307.00 basis points, from its low of 30,149.07bps on a positive market breadth for the first time in two weeks.
Market technicals for the day were positive as volume traded was higher than the previous day, in the midst of positive market breadth and strong buying pressure. This was revealed by Investdata’s daily sentiment report showing buy position of 100%, of the total daily transaction volume index of 1.18.
The energy behind the day’s performance was up and seemingly strong, as Money Flow Index crossed the 50 basis points to 53.79points, from previous day’s 44.87bps. This is an indication that funds are entering the market and some stocks, thereby halting the selloff, as the classes of stocks that rebounded were smart money stocks, especially banking and high cap stocks.
Index and Market Cap
The benchmark NSE All-Share Index (ASI) at the end of trading gained a significant 1,112.29bps to close at 31,307bps, after opening at 30,194.71bps, to break out the psychological line 31,000 mark. This represented 3.68% growth, just as market capitalization rose by a robust N489.91bn to close at N13.79tr, from its opening value of N13.3tr, which also represented 3.68% appreciation in value.
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Tuesday’s upturn was driven by the buying interest in stocks like Nestle, Seplat, MTN Nigeria, Dangote Cement, Guaranty Trust Bank, Zenith Bank, NB, UBA, FBNH, Access Bank, ETI, Stanbic IBTC, Oando, UACN, and Dangote Sugar, among others. This impacted positively on the Year-to-Date negative position, which reduced to 0.39%, just as market capitalization gain increased to N2.28tr, or 17.34%, from the year’s opening level of N11.72tr.
Bullish Sector Indices
All the sectoral indexes were in the green, as the NSE Banking led with 6.76%, followed by Oil/Gas’ 3.97% and Industrial Goods by 3.42%. Others are consumer goods and insurance with 2.24% and 0.40% respectively. Market breadth turned positive as the number of advancers outweighed decliners in the ratio of 30:6.
Transaction activities were up in volume and value traded by 132.31% and 227.87%, respectively to 344.81m shares worth N7.27bn, as against the previous session’s 148.21m units valued at N2.22bn. Volume was driven by financial services stocks, like Guaranty Trust Bank, Zenith Bank, FBNH, Access Bank and UBA.
Ecobank Transnational Incorporated and United Bank For Africa were the best-performing stocks, topping the advancers’ table with 10% and 9.65% gains respectively, to close at N12.10 and N6.25 per share on low price attraction. On the flip side, Eterna and PZ lost 8.25% and 4.71% respectively, closing at N3.65 and N8.10, on market forces.
Market Outlook
This mixed performance and recovery may continue, as investors take advantage of cheaper valuation to rebalance their portfolio ahead of March year-end numbers. They may also take into consideration, plans by the Central Bank of Nigeria (CBN) to reduce banks’ participation in government securities, while boosting private sector lending to drive economic activities and investment.
Investors look to government’s policy direction as the market faced low liquidity problems in pre and post-inauguration season, vis-Ã -vis market and economic fundamentals.
The drop in prices of major blue chips in recent times has created entry opportunities, following which we expect speculative trading to shape the market direction going forward.
The ongoing volatility will continue as investors and fund managers rebalance their portfolios, with eyes fixed on political space and ongoing quarterly earnings position and post-election market dynamics. Investors should review their positions in line with their investment goals, the 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 to 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.
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Ambrose Omordion
CRO|Investdata Consulting Ltd
info@investdataonline.com
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