NGSE Indicators Slowdown, As Investors Position Ahead Of Impending Economic Recession

Market Update for April 16

Thursday’s transactions on the Nigerian Stock Exchange (NSE) were mixed and volatile, slowing down the gaining momentum, even as market sentiment remained positive with the composite All-Share index closing marginally high amidst profit booking in banking stocks. There was also buying interest among highly-priced equities to extend the positive stance for the sixth successive session, although on a negative breadth.
The mixed performance is likely to continue because the positive sentiment and seeming market rally is the opposite of current realities, with the Nigerian economy on a slowdown, just as the global and African economies. The uptrend is also happening at a time there is a consensus among analysts- local and international that the nation’s economy is headed for a recession arising from the turmoil caused by the Coronavirus (COVID-19) pandemic. The International Monetary Fund (IMF) sees Nigerian economy tumbling as low as 3.5% (READ MORE), amidst oil price shocks and shutdown of most economies, even as members of the Central Bank of Nigeria (CBN) Monetary Policy Committee (MPC) in their personal comments at the last meeting had warned that given the telltale signs already visible, a recession for the Nigerian economy has become inevitable (READ MORE).

On the NSE, more companies have released schedules preparatory to the publication of their 2020Q1 results, while Africa Prudential became one of the earliest filers. The performance was mild with slight declines in the top and bottom lines, following which Earnings Per Share fell to 17 kobo, from the previous 19 kobo in the corresponding period of 2019.
Meanwhile, this is the time for portfolio repositioning and aligning with sectors and companies that will survive this economic downturn and lockdown. As such, investors should review their investment objectives and play defensive stocks ahead of the recovery.
The number of globally confirmed cases of COVID-19 infections is now over 2.09 million and the number of deaths estimated at 138,245, while Nigeria so far has 13 deaths from 442 deaths due to the disease, while over 152 persons have been successfully treated and discharged. The fast spread of the virus in Nigeria despite the lockdown is a major source of concern, with the diseases already in 22 states.

Meanwhile, Thursday’s trading opened slightly on the upside and oscillated throughout the session on mixed sentiments as continued profit and position-taking among blue-chip stocks. This pushed the benchmark NSEASI to intraday highs of 22,634.28 basis points, from its low of 22,380.94ps, before finishing the session almost flat from its opening point at 22,554.84bps on above-average traded volume.
Thursday’s market technicals were positive and mixed, with higher traded volume than the previous session, in the midst of negative breadth as revealed by Investdata’s Daily Sentiment Report, showing a ‘buy’ volume of 69% and sell position of 31%. Total daily transaction volume index stood at 0.84, just as the energy behind the day’s performance improved with Money Flow Index reading 51.74 points, compared to the previous 44.67ps, indicating that funds entered some stocks.

Index and Market Caps
At the end of Thursday’s trading, the benchmark index inched up by 14.90bps, closing at 22,554.84 points after opening at 22,539.94ps, representing a 0.07% marginal rise, while market capitalization inched N7.76bn up at N11.75tr, also representing a 0.07% value gain.
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The session upturn was driven by buying interest in Nestle, MTN Nigeria, Dangote Cement, Nigerian Breweries, Conoil, GSK, Oando and Honeywell, which impacted mildly on the NSE index, reducing its Year-To-Date loss to 15.93%, while market capitalization YTD reduced to N1.26tr, representing an 8.32% drop from the year’s opening value.

Mixed Sector Indices
The sectorial performance indexes were largely bullish, except for the NSE Banking and Industrial Goods Index that closed 6.25% and 2.04% lower respectively, while the NSE Consumer Goods index led the advancers after rallying 5.69%, followed by the NSE Insurance and Oil/Gas that were up by 1.19% and 0.25% respectively.

Market breadth, however, turned negative as decliners outweighed advancers in the ratio of 20:18, just as transactions in volume and value terms rose by 16.13% and 29.59% respectively, as investors exchanged 379.11m shares worth N4.33bn from the previous day’s 326.49m units valued at N3.34bn. This volume was driven by trades in Zenith Bank, FBNH, Ekocop, UBA, and Guaranty Trust Bank.
Nestle Nigeria and Nigerian Breweries were the best-performing stocks during the session, after gaining 10% each, closing at N913.20 and N29.45 per share on market sentiment and low price attractions. On the flip side, Access Bank and Sterling Bank lost 10% each, closing at N6.30 and N1.35 per share respectively, on profit-taking.

Market Outlook
Being the last trading day of the week, we expect profit taking to continue since the index had formed another double top on mixed sentiment as smart money repositions their portfolios ahead of more corporate earnings and March inflation data from the National Bureau of Statistics (NBS). More companies have continued to notify the exchange and investors of their virtual annual general meetings and closed period for 2020 first-quarter earnings reports.

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 selloffs, with investors buying to increase their 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.
Meanwhile, the home study packs of our Invest 2020 Opportunities and Trade Ideas Summit, containing different Stocks for various investment objectives in 2020 and beyond are available. To obtain your pack send ‘Yes’ or ‘Stock’ to 08028164085, 08032055467, 08111811223 now.

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