Profit Taking Ahead, Amidst Month-end Window Dressing, Santa Claus Rally Market
Update for The Week ended November 22 and Outlook for Nov 25-29
The benchmark All-Share index of the Nigerian Stock Exchange (NSE) rallied in the past week on sustained positive sentiments as demand for equity assets increased as a result of the lower rate and declining yields in the fixed income markets. This was due to the unconventional monetary policy adopted by the Central Bank of Nigeria (CBN) that helped to release liquidity to the nation’s private sector and drive economic growth.
Despite the uptrend in stock prices, the two released economic data: the Consumer Price Index and the third-quarter GDP, had traces of mixed performance and weakness. While the CPI came in worse than expected at 11.61%, a spike up from 11.24% in September, Q3 GDP came stronger at 2.28%, as against the previous quarter’s 2.12%, which had been revised from the earlier stated 1.94%.
The Q3 GDP growth was despite a slowdown in some sectors and uptick in others, just as inflation rate jumped for the second consecutive month after falling to 11.02%, in August, its lowest point in three years.
Besides the nation’s land border closure, heavy rainfalls affected farm produce, just as imported food inflation combined to further heighten inflationary pressure during the month as demand for goods and services increased ahead of the oncoming festive period. The economic growth recorded in Q3 was despite the weak expansion in the oil sector, indicating that other sectors are gradually looking, thereby reflecting the impact of the CBN’s policy directives. This is a call to the fiscal authorities to complement the monetary policy initiatives by implementing the capital budget and in the process boosting the tempo of economic recovery.
Manufacturing sector activities picked up again in October, as shown in the Purchasing Managers Index (PMI), which moved 20 points to 57.90 points from the 57.70 points recorded in September 2019.
The global stock markets had a mixed performance during the week under consideration, despite the seemingly positive economic outlook for the rest of the year and 2020, as the trade war tension between the U.S and China slows down on the expected deal. This had left the stock market volatile through the week, but rebounded on Friday on news that President Donald Trump believes a trade deal is “very close”.
The global stock markets had a mixed performance during the week under consideration, despite the seemingly positive economic outlook for the rest of the year and 2020, as the trade war tension between the U.S and China slows down on the expected deal. This had left the stock market volatile through the week, but rebounded on Friday on news that President Donald Trump believes a trade deal is “very close”.
Movement Of NSEASI
Back home, the market maintained a positive buying interest on a higher traded volume during the period, despite the NSE index opening the week negative, after losing 0.60%, a situation that was attributed to profit-taking, as well as the delisting of Dangote Flour Mills, following the consummation after being acquired by Olams International for N120bn.
Back home, the market maintained a positive buying interest on a higher traded volume during the period, despite the NSE index opening the week negative, after losing 0.60%, a situation that was attributed to profit-taking, as well as the delisting of Dangote Flour Mills, following the consummation after being acquired by Olams International for N120bn.
The loss was halted Tuesday when the index gained 0.18%, a situation that was sustained for the rest of the week on demand for Consumer Goods, Oil, Insurance and Banking stocks. On Wednesday, Thursday and Friday, the index gained 0.14%, 0.36%, and 0.44% respectively, bringing the week’s total gain to 0.52%.
The NSE All-Share index opened for the week at 26,851.68basis points and closed at 26,991.42bps, after testing an intra-week high of 27,039.80bps, on strong demand for all class of stocks.
Medium and low cap stocks dominated the top gainer table for the week as profit-taking hit highly capitalized stocks, with fund managers’ targeting high dividend-paying and blue-chip stocks ahead of the year’s final Monetary Policy Committee (MPC) meeting and the year-end. More stocks closed higher, following a capital wave in the local financial market.
Medium and low cap stocks dominated the top gainer table for the week as profit-taking hit highly capitalized stocks, with fund managers’ targeting high dividend-paying and blue-chip stocks ahead of the year’s final Monetary Policy Committee (MPC) meeting and the year-end. More stocks closed higher, following a capital wave in the local financial market.
Market breadth closed positive, with advancers outnumbering decliners in the ratio of 40:23, while the momentum behind the week’s performance came stronger with Money Flow Index reading 57.46bps, compared to 51.46bps in the previous week, indicating that funds entered some stocks and the market at large.
The week’s trading pattern showed that investors and traders are taking advantage of the prevailing low prices and expected an uptick in manufacturing activities, due to the impact of lower rates, resulting in reduced cost of funds and the consequent boost in demand expected to create employment. Also, Investdata Sentiment Report for the week revealed a strong buying pressure, with ‘buy’ volume at 87%, and ‘sell’ position of 13%, on a transaction volume index of 1.03.
NSEASI Weekly Time Frame
The positive momentum behind the current uptrend of the NSE Index suggests a bull rally in a bearish channel as revealed by the chart above. However, the sustainability of this trend is a function of market forces, depending also on the outcome of the two-day MPC meeting, which opens tomorrow in Abuja, and the continued flow of funds into undervalued equity assets. The daily and weekly candlestick patterns signal short-term profit-taking, being the last trading week for the month, ahead of the Santa Claus rally and end of year window dressing by fund managers and quoted companies.
The positive momentum behind the current uptrend of the NSE Index suggests a bull rally in a bearish channel as revealed by the chart above. However, the sustainability of this trend is a function of market forces, depending also on the outcome of the two-day MPC meeting, which opens tomorrow in Abuja, and the continued flow of funds into undervalued equity assets. The daily and weekly candlestick patterns signal short-term profit-taking, being the last trading week for the month, ahead of the Santa Claus rally and end of year window dressing by fund managers and quoted companies.
On a weekly and daily time frame, MACD has turned bullish as the composite NSE index sustained an uptrend signaling the possibility of recovery as demand for stocks continues to look up in the midst of profit-taking. The recent economic data should strengthen investor confidence on the back of the recovery seen in the economy as demonstrated by the latest GDP data, as well as the buying interest in stocks that was seen during the week under review.
The NSEASI on a weekly time frame tested the 20-Day Moving Average as it is set to breakout or pullback, while on daily time frame, the index had broken out the 50-Day Moving Average on divergence in the index action and volume traded. It also signals a high possibility of reversal any moment from now on profit booking. The Relative Strength Index reads 39.77, indicates strength, despite being in the oversold region. However, money flow is reading 57.46 points and looking up on the weekly chart.
Mixed Sectoral Indices
The week’s sectorial performance indexes closed largely bullish, except for the NSE Industrial Goods and Banking that closed lower by 2.25% and 0.86% respectively, while the NSE Consumer Goods Index led the advancers after gaining 6.02%, followed by the NSE Oil/Gas and Insurance which were up 2.46% and 0.46%.
Market activities, in terms of volume and value for the week were down by 31.73%% and 49.07% respectively, as 1.42bn shares worth N17.25bn, exchanged hands as against the previous week’s 2.08bn units valued at N33.87bn. The week’s transaction volume was driven by heavy trading in UACN, FBNH and Access Bank. Also, during the week the share price of Airtel Africa, Global Spectrum Energy Service and Nigerian Breweries were adjusted for interim dividends of N9.20, five kobo and N0.50 respectively.
The week’s sectorial performance indexes closed largely bullish, except for the NSE Industrial Goods and Banking that closed lower by 2.25% and 0.86% respectively, while the NSE Consumer Goods Index led the advancers after gaining 6.02%, followed by the NSE Oil/Gas and Insurance which were up 2.46% and 0.46%.
Market activities, in terms of volume and value for the week were down by 31.73%% and 49.07% respectively, as 1.42bn shares worth N17.25bn, exchanged hands as against the previous week’s 2.08bn units valued at N33.87bn. The week’s transaction volume was driven by heavy trading in UACN, FBNH and Access Bank. Also, during the week the share price of Airtel Africa, Global Spectrum Energy Service and Nigerian Breweries were adjusted for interim dividends of N9.20, five kobo and N0.50 respectively.
The best-performing stocks for the period were Neimeth and Cornerstone Insurance, which topped the advancers’ chart, after gaining 40% and 35.48% respectively, to close at N0.56 and N0.84 per share on market forces and sentiments. On the flip side, Lasaco Assurance and Jaiz Bank lost 20.69% and 11.27% respectively, closing at N0.23 and N0.63, on market forces and profit-taking.
Market Outlook
Being the last trading week of November and last MPC meeting for the year, we expect mixed performance in the new week, on profit-taking, capital wave and outcome of MPC meeting depending on the vote on whether to retain the benchmark Monetary Policy Rate (MPR) at 13.5%, or cut it, considering the latest spike in the inflation rate of 11.61% and Q3 GDP growth of 2.28%. Expect local fund managers to extend their position in undervalued equities with sound fundamentals. As, domestic economy macroeconomic indicators look seemingly positive ahead of policy statements and economic reforms.
Being the last trading week of November and last MPC meeting for the year, we expect mixed performance in the new week, on profit-taking, capital wave and outcome of MPC meeting depending on the vote on whether to retain the benchmark Monetary Policy Rate (MPR) at 13.5%, or cut it, considering the latest spike in the inflation rate of 11.61% and Q3 GDP growth of 2.28%. Expect local fund managers to extend their position in undervalued equities with sound fundamentals. As, domestic economy macroeconomic indicators look seemingly positive ahead of policy statements and economic reforms.
Discerning investors, nonetheless, should take advantage of the current low stocks valuation to position for medium to long term. It is noteworthy that the market is selling at a discount to give high upside potential.
We would, however, not overlook the possibility of a bargain-hunting motive supporting positive performance, especially with many fundamentally sound stocks remaining underpriced. With a dividend yield of major blue-chips continuing to look attractive in recent weeks, we expect speculative trading to shape the market’s direction, despite the seeming mixed outlook.
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