Expect Mixed Trading, As Foreign Investors Unable To Exit I&E Window Reposition Afresh

Market Update for the Week Ended April 24 and Outlook for Apr 30-May 1

Last week’s trading on the Nigerian Stock Exchange (NSE) was one full of mixed trends and sentiments as the benchmark All-Share index closed lower on low traded volume, thereby short-living the two previous weeks of bull-run. Friday’s positive close in the midst of oscillated oil prices that followed a historical swing as it hit a 21-year low on excessive supply that was due to a shortage of storage facilities. The planned easing of lockdowns in some countries and businesses across the globe may, however, trigger increased demand for oil, just as it could backfire due to the high risk surrounding the global pandemic.

Meanwhile, the number of active COVID-19 cases in Nigeria has continued to surge, with more people testing positive and being treated, bringing the total number of confirmed cases above the 1000 mark.

Investors during the week under review kept their eyes on economic and earnings news, especially the March Consumer Price Index from the National Bureau of Statistics showing that inflation rose to 12.26% from 12.20% in the previous month- the highest in 23 months. This, therefore, calls for policy measures to address this consistent rise in the consumer price index for the eighth consecutive month, especially now that the lockdown arising from the Coronavirus outbreak globally has triggered prices of goods and services.

With the lockdown leading to the shutdown of manufacturing and businesses, many companies will be unable to pay salaries, a situation that will affect purchasing power among Nigerians, leading to supply and demand shocks. These urgently require policy measures from the government and policymakers to address the dwindling national productivity.
Also last week, more companies released their quarterly and audited full-year 2019 earnings reports with mixed numbers, which helped to impact positively on the share prices of companies that beat market expectations.

We would like to reiterate that the changing market dynamics and post-coronavirus environment calls for a change of trading and investment strategies with the objective of aligning your portfolio to current economic realities. That will help you as an investor and trader to stay ahead of the market.
It should be noted also that attention in the market today is moving to the financial sector despite the high risk of oil price, the moratorium on interest rates, the advice that banks renegotiate the terms of existing loans, and the general downturn.

There is also remarkable interest in healthcare and telecommunication stocks, arising from the N50bn fund targeted at the former by the Central Bank of Nigeria (CBN) and the increased patronage of the later as Nigerians shift to working off-site and relying on online meetings, phone calls to stay in touch, as well as mobile and digital platforms for news and information on local and global, more than ever before in view of the lockdown.

During the week, stocks like Guinness Nigeria, International Brewery, Ardova (Formerly Forte Oil), Transcorp Hotel and Skypower Aviation, hit their new lows, with a high possibility of making lower lows. Investors and traders should, therefore, be guided.
On the flip side, Julius Berger, May& Baker, Ekocorp, Union Diagnostics, and Morison Industries, hit their new 52-week high.

Movement Of NSEASI
The composite NSEASI started the week flat, closing 0.01% up due to indecision among market players, before caving in under pressure on Tuesday, as profit-taking hit banking and large company shares, dragging the index 1.26% down, coinciding with news about oil price hitting its 21-year low. By midweek, trading returned positive with 0.66% gain on renewed buying interest in the banking stocks, a trend it failed to sustain on Thursday after high cap stocks suffered losses with the index taking a 1.36% cut. The market witnessed a slight rebound on Friday when the index again gained 0.57%, bringing the week’s total loss to 1.41%, compared to the previous week’s 7.19% gain.

For the week specifically, the NSEASI lost 322.21 basis points, after opening at 22,921.59ps, touching an intra-week high of 23,148.34bps and low of 22,407.60bps on a selling sentiment, amidst the low traded volume. During the week, many traders booked profit amidst the uncertainties surrounding the economic outlook as oil prices hit historical lows.

The index closed the week at 22,599.38ps, after breaking out the 23,000 marks to test 23,143.34points, just as market capitalization slowed down by N170bn to close at N11.78tr from an opening value of N11.95tr, representing 1.41% down. Just as the share price of Capital Hotel, Fidelity Bank, FBN Holdings, and MTNN were adjusted for dividends announced earlier by their directors.

During the week, nine companies released their Q1 2020 unaudited results- UBA, FBNH, Access Bank, Ecobank Transnational Incorporated, Guaranty Trust Bank, Cadbury, Unilever, United Capital, and Nigerian Breweries. Also, three companies presented their 2019 full-year with the dividend of 10 kobo from UACN, and four kobo from Wema Bank, while Aluminum Extrusion offered no dividend. Also, more companies notified the exchange of their closed period and board meeting to approve Q1 earnings reports, while more financials are expected in the new week and month.

The profit-taking and selling sentiments reflected in the market breadth as decliners outnumbered advancers in the ratio of 33:25, just as the energy behind the week’s performance was weak, with the Money Flow Index falling to 16.31bps from 20.87bps recorded in the previous week. The selling sentiment during the period was confirmed by Investdata’s Sentiment Report for the week, showing 74% ‘sell’ volume, leaving buy position at 24%, as the transaction volume index stood at 0.77.

Mixed Sectoral Indices
The sectorial performance indexes were largely bearish for the period, except for the NSE Insurance and Industrial Goods that closed higher by 1.17% and 0.71% respectively, while the NSE Banking index led the decliners after losing 5.34%; followed by the NSE Consumer Goods index with 2.64% down and next was NSE Oil/Gas that drop by 1.68%.

Market activity in terms of volume and value were mixed as volume was down by 20.1% to 1.2bn shares, as against the previous week 1.5bn units, while value went up by 8.4% to N13.98bn from the previous week’s N12.89bn.

Meanwhile, discerning investors continue to take advantage of the low prices in the midst of the lockdown, confusion, and insecurity to reposition their portfolios for the medium to long- term, as more Q1 earnings reports are hitting the market. The week’s volume was boosted by trades in financial services stocks, especially FBNH, Guaranty Trust Bank, and Zenith Bank.

Cadbury Nigeria and Wema Bank were the best-performing stocks for the week, after topping the advancers chart, gaining 18.23% and 10.71% respectively, at N7.45 and N0.62 per share on impressive Q1 numbers and 2019 full-year with the dividend of four kobo. On the flip side, Skypower Aviation and UACN lost 26.21% and 17.23% respectively, closing at N1.52 and N6.20 per share on selloffs and profit-taking

Market Outlook
We expect a mixed performance in the new week due to profit-taking, repositioning of foreign investors that are unable to exit with US$ at the Investors & Exports window of the foreign exchange market, even as Nigerian state governors are calling for a nationwide lockdown for yet another 14 days as the infected people crossed 1000 persons in Nigeria on Saturday. Investors should be on the lookout for developments around the implementation of the CBN’s lending to small and medium scale businesses through NIRSAL Microfinance Bank to support their trades.

Already, we notice that investors are taking the position in healthcare and other defensive stocks that are likely to survive this meltdown, following which there is increased transactions in them, even as global markets are on the recovery path already, as lockdowns are gradually being relaxed.

Also, do not forget to identify and play defensive stocks among the many fundamentally sound companies that remain depressed, making them attractive for bargain hunting by market players. This has also resulted in significant improvements in Dividend Yields of stocks, even as we note the fact that fund managers who held cash before now, may have to rethink the strategy and go for value stocks with high upside potentials.

While discerning investors should take advantage of the current low stocks valuation to position for the medium to long-term, it is noteworthy that the Nigerian equity market is selling at a discount and therefore offers high upside potential.

The bargain-hunting motive supports positively the performance, especially with many fundamentally sound stocks remaining underpriced, while the dividend yield of major blue-chips continues to look attractive in recent weeks. We expect speculative trading to shape the market’s direction, despite the seeming mixed outlook.

To position for the short to long-term, investors should target fundamentally sound, dividend-paying stocks, for possible capital appreciation in the coming months. 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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