Slowdown In NGSE Decline, Amidst Indecision, But Focus Remains On Dividend Paying, Value Stocks

Market Update for December 4

The nation’s stock market at midweek continued its decline but at a slower pace, while mixed sentiments continued to prevail as market players traded cautiously, despite the rates and yields’ crash across other investment windows, as well as the expected seasonal market moves this December.

The declining transaction volume signals the wait-and-see attitude of smart traders using this opportunity to accumulate some stocks ahead of the seasonal rally associated with year-end.

Indeed, the market is still out of its bearish zone despite the three sessions of profit booking and the trading volume pattern displayed so far. The NSE Index’s movement pattern since the introduction of the new pricing methodology by the management of the Nigerian Stock Exchange differs from some sectorial indexes and individual stocks. The price movement of some stocks that are creating wealth for traders may not, as such, reflect on the index due to the insignificant impact of these equities, as a result, their low prices. The price movement of blue-chip and dividend-paying stocks is a function of the level of liquidity available to the market, while a small amount of money can move the kobo stocks.

Wednesday’s trading opened on the downside, wobbling between the mid-morning and afternoon on buying interests sell down in others, which dragged the benchmark index to an intraday low of 26,918.12 basis points, from its high of 26,956.43bps. Thereafter, it rebounded slightly to close the day lower at 26,934.58bps on positive market breadth.

Market technicals for the session were weak and mixed as volume traded came lower than the previous day, with breadth favouring the bull, just as there were mixed sentiments predominantly as revealed by Investdata’s sentiment report of a 53% ‘buy’ volume and 47% sell position. The day’s total transaction volume index stood at 0.36, with a slowdown in the momentum behind the day’s performance as Money Flow Index read 57.52 points, from the previous 62.77bps. This is an indication that funds left some stocks and the market, despite the low traded volume.

Index and Market Caps

The All-Share Index, at the close of midweek trading, shed a marginal 5.74bps, closing at 26,938.58bps from its 26,944.32bps opening, representing a 0.02% drop, just as market capitalization lost N2.78bn at N13tr, from the opening value, which also represented a 0.02% value loss.

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Midweek’s downturn was driven by market forces and profit-taking in stocks like Guaranty Trust Bank, Zenith Bank, Okomu Oil, UBA, Wema Bank, FCMB, Honeywell, Oando and Transcop, which impacted mildly on the NSE’s Year-to-Date loss, increasing it to 14.29%. Market capitalization gain for the period dropped to N1.21tr, representing a 10.93% growth from the year’s opening value of N11.72tr.

 Mixed Sector Indices

The sectoral performance indices were largely bullish, except for the NSE Banking and Oil/Gas indexes that closed 0.45% and 0.24% lower respectively, while NSE Insurance led the advancers after gaining 0.77%. It was followed by Industrial and Consumer Goods indexes, which were up by 0.34% and 0.15% each.

Market breadth turned positive as advancers outnumbered decliners in the ratio of 16:13, while market activities dropped in volume and value by 40.27% and 62.64% respectively to 112.89m shares worth N1.08bn from the previous day’s 189.01m units valued at N2.88bn. This volume was boosted by transactions in Zenith Bank, FCMB, UBA, Fidelity Bank and Guaranty Trust Bank.

Japaul Oil and May & Baker were the best-performing stocks for the day as they topped the advancers table, chalking 10% and 9.74% respectively to close at N0.22 and N2.14 each respectively, on the back of market forces. On the flip side, Sterling Bank and Chams lost 6.34% and 5.72% respectively, closing at N1.92 and N0.33 on profit-taking and market forces

Market Outlook

We expect this mixed performance to continue at these early days of December, given the profit-taking and level of indecision among market players ahead of the usual Santa Claus and year-end rally as capital flow and repositioning in value stocks will persist. There is also the changing sentiment in the expectation of improved liquidity and positive economic indices. At the maturity of OMO investment, more funds will be available as CBN has restricted players to foreign investors and the local banks.

Again, the current undervalued state of the market offers investors opportunities to position for short and medium-to-long-term views. We expect that investors would target fundamentally sound and dividend-paying stocks for possible capital appreciation as the year draws down to usher in 2020.

Also, traders and investors need to change their trading strategies due to NSE’s pricing methodology, CBN directives and its impact on the economy in the nearest future.

https://investdata.com.ng/2019/12/slowdown-in-ngse-decline-amidst-indecision-but-focus-remains-on-dividend-paying-value-stocks/#more