Mixed Market, Profit Taking Ahead, Amidst Wait For December Inflation, Earnings Reports

Market Update for the Week Ended January 10 and Outlook for Jan 13-17
It was yet another bull run on the Nigerian Stock Exchange in the first full trading week of the year 2020, with the composite All-Share index closing higher on strong demand for larger and small-cap stocks, following the positive sentiment for better and higher returns. The stock market’s average Dividend Yield stood at 6.18%, higher than money market rates, including the 364-day Treasury Bill rate of 5.2%, as well as the 7.14% annual return of Federal Government bonds, both of which are below daily capital gain in the stock market and inflation rates.
This impressive year-to-date performance of the NSE ranks it among the world’s best performing exchanges in US Dollar terms.
This year also, the NSE has seen the completion of the year’s first merger- between Cement Company of Northern Nigeria and Obu Cement, following which CCNN was delisted, which was replaced by BUA Cement Plc, on Thursday.

During the week, also, the Federal Government announced the withdrawal of its case against MTN Nigeria over allegations of an unpaid backlog of taxes, in what may be the country’s way of assuring it is friendly to investment, as part of its Ease of Doing Business campaign.
The 2019 full-year earnings reporting season kicks off next month, and as we have said coming into the year, all is set for positive earnings surprises. This expectation was triggered by the improved Purchasing Managers’ Index in the final quarter of 2019, which has been extended into the New Year, in view of stock valuations after the week ended positive on a recovery trend after closing negative for two consecutive years.
The market is at 9.45x forward earnings (earnings expectations for the next 12-months), which means it is still cheap, in the face of declining yields in fixed income instruments and the low-interest rate regime in the money market. As we discussed previously, historically when rates come low, stock valuations tend to run north. In the final half of 2019, as we have written previously, rates remained low, and the Price/Earnings ratio of stocks indeed remained below 10 to end the year. If the market is, again, underestimating earnings, then the market is cheaper than it appears, at even 9.45x forward earnings.

Movement Of NSEASI
All through the period under review, the NSE’s performance index climbed up, beginning with its 1.39% gain on Monday as fund managers and others repositioned for the year and continued for the rest of the week, gaining 0.89%, 3.54%, 2.92% and 0.07% respectively. This bought the week’s total gain to 9.07%, as against just 2.09% in the preceding week that ushered in the bull ascendance.
The benchmark index opened the period at 26,968.99 points and touched an intra-week high of 29,585.13 basis points, on improved buying interests in Industrial Goods, Financial Services and Consumer Goods, which had suffered huge losses before now. The index closed the week at 29,415.39bps on huge traded volume. Also, market capitalization rose significantly to close the week at N15.18tr, from its opening value of N13.02tr, representing 16.55% appreciation in value. This was due to the listing of 33.86bn shares of BUA Cement at N35, which boosted market cap by N1.38tr as it replaced CCNN.

Large-cap stocks have for a long while continued to dominate the advancers’ log, with speculators and investors rushing to position ahead of positive economic and corporate numbers. This impacted the week’s rally, following which market breadth remained positive, as advancers outnumbered decliners in the ratio of 51:20. The energy behind the week’s performance was strong and up as revealed by the Money Flow Index reading at 64.61bps, from 56.13bps in the previous week.
The increased volume of trade and classes of stocks that appreciated in value shows that accumulation is ongoing in expectation of better 2019 full-year earnings reports, with the hope of markup in dividend-paying stocks with high yields and strong earnings capacity. Also, Investdata Sentiment Report for the week revealed a strong buying pressure of 94% ‘buy’ volume and ‘sell’ position of 4%, on a transaction volume index of 1.97.

NSEASI Weekly Time Frame
NSE Index’s price action and trading sentiment for the week confirm a breakout of the bearish zone in the recovery state of the market. The breakout of three psychological marks of 27,000, 28,000 and 29,000 to test 29,585.13 point in just five trading sessions indicates a strong inflow into the market as all classes of market players, especially as the institutional and fund managers, position for the first quarter of 2020 being the peak earnings season of the market. Friday’s trading pattern revealed profit booking that slowed down the gaining momentum for the period as reflected in the weekly candlestick, while at the same time indicating that markup is still ongoing, as the index action is trying to recover lost grounds and many equities remain undervalued.

The daily and weekly candlestick patterns reveal a mixed signal as the action has formed double tops on a daily chart that suggests profit-taking and pullback in the short-term, while weekly chart indicates more rooms for a rally, depending on market forces.
On a daily and weekly time frame, MACD has remained bullish with the composite NSE index sustaining an up movement that signals continuation of the recovery mode 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 50-Day Moving Average, while on a daily basis, it is trading above the 100-DMA last week on a high traded volume. The Relative Strength Index read 64.02, indicating relative strength. However, Money Flow is reading 63.42 points and looking up on the weekly chart which is an indication that funds are entering the market and individual stocks.

Bullish Sectoral Indices
All the sectorial performance indexes for the week were bullish, except for NSE Oil/Gas which was down by 0.02%, while the NSE Industrial Goods Index led the advancers, after gaining 22.27%; the NSE Banking index grabbed 8.36%; followed by the NSE Insurance and Consumer Goods indexes that were up by 2.05% and 0.82% respectively.
Market activities in terms of volume and value for the week were up by 16.02% and 50.6% respectively, as investors exchanged 2.68bn shares worth N32.65bn, as against the previous week’s 2.31 billion units valued at N21.68bn. This volume was mainly driven by trades in financial services providers, especially in UBA that hit its new 52 weeks high within the period, Zenith Bank and Wapic Insurance.
The best-performing stocks for the week were Dangote Cement and Presco, as they led the advancers’ chart, after gaining 21.13% and 19.79% respectively, closing at N172 and N56.90 per share on low price attraction and share buy-back programme, and the interplay of market forces. On the flip side, NCR and Union Dicon lost 10% and 9.88% respectively, closing at N4.05 and N10.95 on selloffs.

Market Outlook
We expect mixed performance as profit-taking is underway, in expectation of December inflation report and continued positioning for the New Year by institutional investors as more money market investments reach maturity. Expectations are that as a result, more liquidity may find 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 the mixed outlook for 2020 from different analysts.

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.

Again, the current undervalued state of the market offers investors opportunities to position for the short, medium and long-term, which is why investors should target fundamentally sound and dividend-paying stocks for possible capital appreciation in the New Year. This was noted in the 10 golden stocks and trading ideas for 2020, as discussed extensively during the Investdata 2020 Opportunities & Trade Ideas Summit.
Also, traders and investors need to change their strategies, because of the NSE’s pricing methodology, CBN directives and its impact on the economy in the nearest future.
Meanwhile, the Investdata team welcomes you to a bullish 2020. The home study packs of Invest 2020 Opportunities and Trade Ideas Summit containing the 10 Golden Stocks for 2020 are available with an average return of 13.37% in less than 30 days. To obtain your pack send ‘Yes’ or ‘Stock’ to 08028164085, 08032055467, 08111811223 now.

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