Mixed Trading Lingers, Amidst Continued Lock Down As Investors Expect 2020Q1 Earnings

Market Update for April 1
The bear dominance in Q1 of 2020 was extended to the first trading day of April, which ushered in the second quarter at the midweek, as the Nigerian Stock Exchange’s composite All-Share index closed lower for the third successive session on negative sentiments and selloffs among highly capitalized stocks.

This, nonetheless, created new entry opportunities for buyers, even as the Coronavirus pandemic continues to spread, with the government announcing new cases that bring the total number to 179, with two deaths, while nine have been discharged at the end of Wednesday, April 1, 2020, amidst fears that many more are roaming the streets untested and undetected. The government is, however, enforcing the lockdown in key states of Lagos and Ogun, as well as the Federal Capital Territory, Abuja, while continuing contact tracing.

The pandemic has however left investors across the globe worried over increasing economic impacts of the economic lockdown that may force the world into another round of recession at a time oil is already selling below the Federal Government’s revised benchmark price of $30 per barrel.
The Nigerian equity market has remained under the heavy negative influence of the deadly virus as investors continue to play safe, despite the very attractive stock prices.

The truth, however, is that many funds are currently trapped by the bear, while few traders with trading capital take advantage of the induced drop in stock prices, even as the most discerning investment decision is to avoid panic selling at the current prices.
The power of economic productivity and consumption cannot be overemphasized, along with the importance of international trades at a time when the global lockdown continues to impact crude oil prices. This follows the drastic cut in consumption, pushing the commodity price to an 18-year low, thereby threatening many economies, especially Nigeria that is heavily dependent on oil revenue to run its economy.

Midweek’s trading started on the downside in the morning into the midday before oscillating seriously on selloffs in large companies and position taking in high cap stocks that pushed the NSE’s composite index below 21,000 basis points. The index tested an intraday low of 20,779.13 basis points, from its high of 21,317.98bps, and thereafter closed the day lower at 21,100.54bps on a low traded volume.
Market technicals at the midweek were negative and mixed, as volume traded was lower than the previous day in the midst of negative breadth and mixed sentiment as revealed by Investdata’s Daily Sentiment Report, showing ‘sell’ volume of 40%. ‘Buy” position stood at 60% on a total daily transaction volume index of 0.34, just as the impetus behind the day’s performance was seriously weak, despite Money Flow Index inching up to 16.19 points, from the previous session’s 13.99ps, indicating that funds entered the market and some stocks, despite closing lower.

Index and Market Caps
At the close of trading on Wednesday’s the NSE benchmark Index lost 199.93bps, closing at 21.100.54ps, from its opening figure of 21,300.47ps, which represented a 0.94% decline. Market capitalization shed N104.19bn, closing at N10.996tr from the N11.1tr it opened, which also represented a 0.94% value loss.
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Wednesday’s decline was impacted by selloffs and profit-taking in stocks like Dangote Cement, Guaranty Trust Bank, Zenith Bank, Access Bank, UBA, ETI, Dangote Sugar, Flourmills and FBNH which impacted negatively on the NSE index, increasing its Year-To-Date loss to 21.39%. Market capitalization YTD loss stood at N1.96tr, representing a 15.14% decline over the year’s opening value.

Bearish Sector Indices
The sectorial performance indexes were largely bearish except for the NSE Insurance index that closed in the green by 0.08%, while the NSE Industrial Goods led the decliners after losing 2.57%, followed by the NSE Banking and Consumer Goods which closed 1.99% and 1.22% down respectively. While Oil/Gas ended the day flat.

Market breadth turned negative as decliners outnumbered advancers in the ratio of 26:6, just as market transactions in volume and value were mixed with traded volume dropping by 63.38% to 151.55m shares from the previous day’s 328.12m units, while value was up by 2.49% at N1.82bn from the previous day of N1.77bn. This volume was driven by trades in Zenith Bank, GTBank, FBNH, Access Bank and Fidelity Bank.
MTNN and International Brewery were the best-performing stocks for the session, topping the advancers’ table with gains of 9.37% and 9.18% respectively while closing at N98.40 and N5.35 per share on low price attraction and market forces. On the flip side, Unilever and Dangote Cement lost 10% and 9.95% respectively, closing at N9.90 and N116.80 respectively on selloffs.

Market Outlook
We expect mixed intraday performance to continue, as trading sessions in the remaining days of lockdown still dicey, with market players are likely to position ahead of Q1 2020 earnings reports and impact of the stimulus package on the economy in the midst of dividend payment by the companies that postponed their Annual General Meetings and others.

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.

https://investdata.com.ng/2020/04/mixed-trading-lingers-amidst-continued-lock-down-as-investors-expect-2020q1-earnings/#more