Mixed Session May Continue, As Investors Interpret Impact Of MPC Decisions, Stimulus Package

Market Update for March 24
The composite All-Share index of the Nigerian Stock Exchange had a mixed performance on Tuesday as seen in the trading patterns of bargain hunters, with medium and high cap stocks hitting new lower lows. They are therefore selling at a huge discount, considering their intrinsic values as the Coronavirus continue to take a toll on the global and domestic economy, even as the central bank and government continue to unfold a bouquet of stimulus package to mitigate the impact on the Nigerian economy. The market reacted favorably to this on Tuesday, following which the indicators closed higher on Tuesday in the midst of rising new cases of the virus outbreak in the country involving prominent government officials.

In the midst of the wobbling economic situation and fear of the diseases triggering a major economic crisis, the Monetary Policy Committee while concluding its two-day meeting considered the continued rise in domestic prices; the glut in oil supplies and low oil prices in the wake of the current global pandemic. Members also reviewed the exchange rate pressure and other domestic monetary and fiscal responses as they affect the evolving crises. In view of these, the committee decided by a unanimous vote to retain the Monetary Policy Rate (MPR) at 13.5%, and to hold all other policy parameters constant (READ MORE).
Although the market rounded up in the green, we do not see the market fully recovering from the grip of the bear soon, nevertheless, we are of the opinion that the long bearish moves offer listed equities at very attractive prices. Consequently, we recommend long term position taking in fundamentally strong equities.

The technical devaluation of the Naira, the lingering border closure and the impact of the global pandemic has reduced cross-border trading resulting in inflationary pressure on everything.
Again, as we discussed early this week, hyperinflation is underway, which means the temptation to hold cash is the worst option for now. The early evidence includes the low money market rates and declining yield in the fixed income market, just as the fear of government being able to redeem its bonds, especially given the shaky revenue profile already. The first place you look to preserve buying power is in stocks as a way of hedging against inflation.

Meanwhile, Tuesday’s trading started slightly on the upside and fell in the midday to the early afternoon before rebounding on buying interests on low price attraction across medium and large company shares. This pushed the benchmark index to an intraday high of 21,770.42 basis points, from its low of 21,703.80bps, before retracing up to finish the day higher at 21,714.16bps on positive breadth.
Tuesday’s market technicals were positive and mixed, as volume traded was lower than previous day’s with breadth favoring the bulls and mixed sentiments, as revealed by Investdata’s Daily Sentiment Report, showing ‘buy’ volume of 56%. ‘Sell’ position stood at 44% on a total daily transaction volume index of 0.76 just as the impetus behind the day’s performance was seriously weak, as Money Flow Index dropped to 12.30points, from the previous session’s 16.40bps. This indicated that funds exited some stocks and the market, despite the seeming upmarket.

Index and Market Caps
The composite NSEASI at the end of the trading, gained 40.18bps, closing at 21.714.16ps, from its opening figure of 21,700.98ps, which represented 0.19% limp, just as market capitalization rose by N20.96bn, closing at N11.33tr, from the N11.33tr opening level which also represented 0.19% value gain.
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The session’s upturn was impacted by the demand for stocks like Guaranty Trust Bank, Zenith Bank, Access Bank, FBNH, FCMB, and NPF Microfinance. This impacted mildly on the NSE, reducing its Year-To-Date loss to 19%, while market capitalization loss stood at N1.63, representing a 12.57% decline over the year’s opening value.

Mixed Sector Indices
The sectorial performance indexes were largely bullish except for the NSE Banking and Consumer Goods that closed 0.33% and 0.24% lower respectively, while the NSE Oil/Gas led the advancers after gaining 0.23%, followed by the NSE Insurance and Industrial Goods which were up by 0.12% and 0.02% respectively.
Market breadth turned positive as advancers outnumbered decliners in the ratio of 19:10, just as market activity in volume and value terms were down by 28.91% and 7.75% respectively, with investors exchanging 330.1m shares worth N3.57bn from the previous day’s 464.36m units valued at N3.87bn. This volume was boosted by trades in Guaranty Trust Bank, Zenith Bank, Access Bank, FBNH and UBA.
NPF Microfinance and Stanbic IBTC were the best-performing stocks as they topped the advancers table, gaining 9.52% and 9.43% respectively, closing at N1.15 and N26.10 per share on dividend expectation and low price attraction. On the flip side, Caverton and Conoil lost 10% and 9.93% respectively, closing at N2.25 and N13.15 respectively on market forces and selloffs.

Market Outlook
We expect mixed performance to continue, as market players interpret the outcome of MPC and expected impact of the stimulus package on the economy in the midst of investors expecting their dividend payment from the companies that postponed their AGM. There is also a low price attraction as investors and traders review the impact of economic measures of the government and its economic managers. However, the high dividend yields continue to attract buying interests, while more audited corporate earnings hit the market going forward. This is despite the likely continuation of the mixed intraday movement in the midst of selloffs, with investors buying increased positions in undervalued 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 undervalue 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.

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