Amidst Attractive Dividend Yield Of Major Blue-Chips, Speculation May Shape NGSE Direction

Market Update for the Week Ended January 3 and Outlook for Jan 6-10

It was a bullish four-day trading week on the Nigerian Stock Exchange (NSE), following the public holiday declared by the Federal Government to mark the New Year on Wednesday, January 1, 2020. This ushered in 2020 on a positive note, with the composite NSE All-Share index maintained an uptrend for the period under review, in continuation of the seeming recovery that started in late 2019 on increased demand for stocks, despite the mixed sentiments and profit-taking.

Bargain hunting during the period was driven by the thirst for undervalued equities and the changing trading pattern supported by the inflow of funds as institutional investors repositioned their portfolios ahead of the coming earnings season. This reflected on the high traded volume and demand for stocks with dividend yields likely to look up, in expectation of corporate earnings season which kicks off in early February.

The relative improvement in macroeconomic indices at the end of 2019Q4 is likely to reflect on the expected numbers, while the drop in the level of the non-performing loan of banks, as revealed by Godwin Emefiele, Governor, Central Bank of Nigeria (CBN), will boost the 2019 full-year earnings report of some banks (READ MORE). Already, the expectation that the prevailing low-interest rates in the money market and declining fixed income yields will support positive sentiments for equity assets and, at the same time, the general economy as banks comply with the December 31, deadline to achieve the new 65% Loan-deposit Ratio. This is expected to make more funds available to the private sector for driving productive activities (READ MORE). This will ultimately oil the macroeconomic system in conjunction with others, like the oscillating oil price in the international market that hit $70 last week; the increased tax revenue expected from the amended Finance Bill that will help government fund for the 2020 budget, even as early disbursement and implementation will have positive and multiplier effects on the economy.

The jump in crude oil price at the international market during the week was due to news that the U.S-Iraq crises, is expected to further impact Nigeria’s reserve and support the foreign exchange market. This is just as the global economic outlook remains unstable, with weaker U.S and EU economic activities as revealed by the latest Purchasing Manufacturing Index declining further in December to 52.4 and 46.3 points respectively, stronger commodities and high stock prices. Also, emerging market stocks are trying to recover from 2018 and 2019 decline, amidst hope that the trade dispute between the U.S and China will come to an end in the nearest future.

Movement Of NSEASI

The benchmark index opened the week positive, gaining 0.73% on Monday as year-end window dressing by fund managers and others hit high cap stocks. This trend continued on Tuesday when the composite NSE index broke out the recent resistance level of 27,018 points to test 27,357.34 to close higher on the last trading day 2019 with a gain of 1.29%. The positive situation kicked off after the New Year holiday on Thursday as the index inched up by 0.10%, while the bull-run was extended to Friday, gaining 0.38%, bringing the week’s total gain to 2.09%, against the negative position of  0.47% loss recorded in the preceding week.

The performance index touched an intra-week high of 27,357.34 basis points, from a low of 26,240.29bps on a strong demand for financial and Consumer Goods and other stocks that had suffered losses over the period, closing at 26,968.79bps from an opening figure of 26,416.48bps. Also, market capitalization was up to close the week at N13.02tr from its opening value of N12.75tr, representing 2.09% appreciation in value.

A blend of low, medium and high cap stocks dominated the advancers table as day traders trading patterns on low priced stocks and others have impacted the week rally, following which market breadth remained positive, as advancers outnumbered decliners in the ratio of 44:29. The momentum behind the week’s performance was up as revealed by the Money Flow Index reading 56.13bps, from 46.34bps in the previous week.

The week’s trading pattern showed that accumulation is still ongoing, ahead of the 2019 full-year earnings reporting season expected in the 2020Q1, with the hope of markup in dividend-paying stocks with high yields and strong earnings capacity underway, even as the 364-day Treasury Bill rate declined further to 5.2%. Also, the Investdata Sentiment Report for the week revealed a mixed sentiment of ‘buy’ volume at 65%, and ‘sell’ position of 35%, on a transaction volume index of 1.16.

NSEASI Weekly Time Frame                                                             

The mixed and positive sentiment behind the recent trading pattern of the NSE Index reveals an increased number of traders, which at the same time indicates that recovery is underway, as the index action is trying to break out the recent resistance level that supports recovering, which is a function of market forces.

It will also depend on players’ taking advantage of low prices to position for the full-year earnings reporting season with the economy expected to sustain its recovery moves in the form of available liquidity needed to drive expansion in the system. The daily and weekly candlestick patterns signal short-term reversal ahead of the New Year’s portfolio repositioning by fund managers and market players

On a weekly time frame, MACD has remained bullish with the composite NSE index sustaining an up movement that signals the possibility of recovery as demand for stocks continues to look up in the midst of profit-taking.

The NSE benchmark index on a weekly time frame is trading above its 20-Day Moving Average, while on a daily basis, it is trading above the 20 and 50-DMA last week on a high traded volume. The Relative Strength Index read 48, indicating relative strength. However, Money Flow is reading 56.13 points and looking up on the weekly chart.

Bullish Sectoral Indices

The week’s sectorial performance indexes were bullish, as the NSE Oil/Gas Index led the advancers, after gaining 5.41%; the NSE Insurance index grabbed 4.58%; followed by the NSE Banking, Consumer Goods and Industrial indexes  that climbed 2.95%., 0.78% and 0.205% up, respectively.

Market activities in terms of volume and value for the week were up by 178% and 310% respectively, as stockbrokers crossed 2.45bn shares worth N30.12bn, as against the previous week’s 735.7m units valued at N7.13bn. Volume was driven mainly by trades in financial services providers and ICT.

Cornerstone Insurance and Eterna were the best-performing stocks, topping the advancers’ chart, after gaining 39.47% and 20% respectively, closing at N0.58 and N3.60 per share on the ongoing recapitalization move and low price attraction. On the flip side, Fidson Healthcare and Union Bank lost 12.90% and 11.76% respectively, closing at N2.70 and N6.00 on impressive earning and profit-taking.

Market Outlook

Being the first full trading week of the year 2020, we expect mixed performance to persist, in expectation of positive macroeconomic indices and continued positioning for the New Year by market players. This is just as more liquidity finds its way to high dividend yield stocks with sound fundamentals, which will also be based on the seemingly positive outlook for the domestic economy, despite what the rating agencies are saying.

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 and therefore offers 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.

Once again, we appreciate all that made Invest 2020 Traders and Investors Summit a success. The home study pack is available. For your own pack, send ‘Yes’ or ‘Stock’ to 08028164085, 08032055467, 08111811223 now.

 Ambrose Omordion

CRO|Investdata Consulting Ltd
info@investdataonline.com
info@investdata.com.ng
ambrose.o@investdataonline.com
ambroseconsultants@yahoo.com
Tel: 08028164085, 08032055467
https://investdata.com.ng/2020/01/amidst-attractive-dividend-yield-of-major-blue-chips-speculation-may-shape-ngse-direction/#more