Investors Hedge Against Inflation, Go For Stocks Promising Higher Dividend Yields

Market Update for February 19
Nigerian stocks again declined at the midweek as players eagerly await more earnings reports and dividend news, especially from the large companies for a reversal of the lingering downtrend and mixed sentiments. Such announcements, if positive as expectedly, would likely propel the inflow of funds into equity assets at time inflation continues to ravage returns on investment in money market and short term fixed income instruments. This is particularly true of Federal Government bonds with yield now below its five-year low, with 91, 182 and 354-day Treasury Bills and FGN Bond primary market rates at 3%, 4%, and 6.54% respectively. Also, the five, 10 and 30-year bond yields are priced at 9.85%, 11.13%, and 12.56%.

United Capital Plc has given some ray of hope to investors, going by its recently released full-year earnings with 50 kobo dividend that translated to a yield of 17.06% as of the released date, a situation that attracted some inflows to the stock. This is to be expected, as income investors take advantage of the high payout at a time the yield is higher than the prevailing inflation rate as announced on Tuesday, by Nigeria’s National Bureau of Statistics. It is noteworthy that the high payout of United Capital has equally attracted funds inflow to its sister company- Africa Prudential, as well as parent company- the United Bank for Africa Plc during the trading session.

Investors should take note that in using stocks to hedge against inflation, companies that can pass their rising product costs to customers, such as those in the Consumer Goods sector and others that enjoy the Federal Government’s Value Added Tax-free policy as captured in the Finance Bill 2019 should be targeted for quick wins (READ MORE).
The slowdown in the spread of Coronavirus infections rate and injection of funds into the Chinese economy by its central bank, as well as its plan to cut short-term interest rates and in the process, stimulate productivity and encourage small businesses affected by the outbreak, has triggered prices of stocks and commodities in the global markets. Oil price, again, hit a three-week high on U.S government sanctioning a trading subsidiary of Russian oil giant Rosneft, accused of helping Venezuela transport oil to refineries in China and India.

Meanwhile, Wednesday’s trading on the Nigerian Stock Exchange started on the downside and maintained that direction throughout the session, but oscillated in the late afternoon to touch intraday low of 27,512.72 basis points, from its high of 27,556.13bps, before adjusting up marginally to close the session lower at 27,523.08bps on a high traded volume.
Midweek market technicals were negative but mixed, as volume traded was higher than the previous session, with breadth favouring the bears, amidst a high selling pressure as revealed by Investdata’s Sentiment Report showing 76% ‘sell’ volume and 24% ‘buy’ position. The total transaction volume index stood at 0.99, while the energy behind the day’s performance was seriously weak, with Money Flow Index flat at 4.55 points, from the previous day’s 4.55 points. This indicated that the market is still lacking in liquidity, despite the seeming entrance of funds into some stocks.

Index and Market Caps
At the close of midweek’s trading session, the All-Share Index lost 24.48bps, closing at 27,523.08bps from its 27.547.56bps opening, which represented a 0.09% decline, just as market capitalization lost N9.14bn, closing at N14.34 trillion, from the N14.35tr opening level, which also represented a 0.09% value loss.

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The session’s decline was impacted by selloffs Guaranty Trust Bank, Forte Oil, Custodian Investment, NCR, Dangote Sugar, Oando, Fidelity Bank and Chams, among others. This impacted negatively on the NSE’s Year-To-Date gain, reducing it to 2.54%., while market capitalization YTD gain fell to N1.38tr representing 10.65% growth over the year’s opening value.

Bearish Sector Indices
All sectorial performance indexes closed in red, except for the NSE Industrial Goods that gained a marginal 0.46%, while the NSE Insurance index led the decliners with its 2.29% loss, followed by NSE Oil/Gas which fell by 1.12%, ahead of the NSE Banking and Consumer Goods that lost 0.55% and 0.13% respectively.

Market breadth remained negative as decliners outpaced advancers in the ratio of 17:13, while market activities in terms of volume and value traded were up by 72.6% and 132.9% respectively to 290.16m shares worth N5.03bn, as against the previous day’s 168.07m units valued at N2.16bn. Volume was boosted by trades in Guaranty Trust Bank, Zenith Bank, FBNH, Japaul Oil and UBA.
The best-performing stocks during the session were United Capital and Africa Prudential, which for reasons stated earlier, gained 9.9% each, closing at N3.22 and N5.12 per share respectively. On the flip side, AXA Mansard Assurance and Forte Oil lost 10% and 9.97% respectively at N1.80 and N16.70 on profit-taking and selloffs.

Market Outlook
We expect dividend news-driven reversal in the market, as the index continues to bounce around 61.8% Fibonacci retracement on a higher traded volume, with more audited earnings expected to hit the market any moment from now. This is despite the likely continuation of the mixed intraday movement in the midst of profit-taking, with investors buying increasing positions in high dividend-paying stocks ahead of dividend declaration. This is also against the backdrop of the fact that the capital wave in the financial market may persist in the midst of relatively low-interest rates in the money market, high inflation and unstable economic outlook for 2020.

Also, investors and traders are positioning in anticipation of the 2019 full-year earnings reports, amidst the changing sentiments in the hope of improved liquidity and positive economic indices which may reverse the current trend.
We see investors focusing on the upcoming full-year earnings season, targeting companies with strong potential to grow their dividend on the strength of their earnings capacity.

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 Traders & Investors Summit held in Lagos.

Also, traders and investors need to change their strategies, because of the NSE’s pricing methodology, the CBN directives and their impact on the economy in the nearest future.
Meanwhile, the Investdata team welcomes you to a bullish 2020. The home study packs of our Invest 2020 Opportunities and Trade Ideas Summit, containing the 10 Golden Stocks for 2020 are available. To obtain your 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
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