Profit-taking Ahead, As NGSE Index Forms Double Top On Mixed Sentiments, Oil Price Decline

Market Update for April 20

Monday’s trading on the Nigerian Stock Exchange closed on a flat note after a two-week rally that ignored seemingly, all the negative news about the impact of the Coronavirus (COVID-19) pandemic now ravaging the global scene, leaving blood and woe on the world’s once boisterous cities, now mostly on lockdown mode.

The sharp divergence between the market performance and economic realities were major sources of concern for many market players and watchers, as the V -bottom shaped recovery pattern was setting in. The high volatility during Monday’s session was due to a much-anticipated profit booking from the recent uptrend besides indecision among players despite price appreciation by highly capitalized stocks.
The day’s downturn particularly followed the news of a further crash in the price of crude oil Nigeria’s mainstay at the international market, hitting its lowest level in 21 years.

It is no longer news that the world is changing drastically and may never return to what we all once knew it for a long time to come, as a new normal set in, following which different scenarios are emerging, with half of the global population on lockdown to curtail the spread of the deadly virus that has killed stock markets, economies, and people. It has led to the closure of many factories, schools, airports, land borders, stalling movement of goods and services.
This global shutdown has in its wake destroyed demand for oil with seizure in manufacturing activities. When the May oil futures contract expires, holders of such contract are under no obligation to take delivery of physical oil. The good thing, however, is that this situation may not last for too long, since many nations are planning to reopen their economies while trial drugs are being tested to address the pandemic.
We know that the market is dicey and the economy is shaky at this time for any reasonable prediction of the future, but the V-shape recovery is attainable and would be driven by sectors that have recently performed badly, including manufacturing, oil & gas, Industrial Goods, financial services. These sectors will be among the first to benefit from the happenings and recession.

Nigeria’s macroeconomic indices remain mixed and are looking weak, even as all eyes are on the March inflation data now being awaited, just as the 2020Q1 GDP numbers are being awaited. It is expected to slow down, while that of Q2 will likely come negative, just as earnings for 2020 across many sectors of the economy could experience a shock-wave.
Meanwhile, Monday’s trading started on the upside and oscillated throughout the day on mixed sentiments as profit and position-taking among blue-chip stocks continued, pushing the benchmark NSE All-Share Index to an intraday low of 22,893.18 basis points, from its high of 23,115.94ps. Thereafter, the session closed almost flat from its opening point at 22,920.56bps on above-average traded volume.

Index and Market Caps
At the end of Monday’s trading, the benchmark index slipped by 1.03bps, after opening at 22,921.59ps, representing a 0.01% marginal drop, while market capitalization was flat at N11.95tr, also representing a 0.01% value loss.
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The day’s downturn was impacted by profit-taking in Guaranty Trust Bank, Guinness Nigeria, Zenith Bank, PZ Cussons, Access Bank, UBA and Oando, which impacted mildly on the NSE index, increasing its Year-To-Date loss to 14.61%. Market capitalization YTD stood to N1.01tr, representing a 7.82% drop from the year’s opening value.

Mixed Sector Indices
The sectorial performance indexes were largely bullish, except for the NSE Banking and Oil/Gas Index that closed 4.01% and 0.45% lower respectively, while the NSE Industrial Goods index led the advancers after rallying 4.89%, followed by the NSE Consumer Goods and Insurance that were up by 1.19% and 1.11% respectively.

Market breadth, however, remained negative as decliners outweighed advancers in the ratio of 16:14, just as transactions in volume and value terms rose by 49.14% and 61.30% respectively, as investors exchanged 345.44m shares worth N4.21bn from the previous day’s 231.61m units valued at N2.61bn. This volume was driven by trades in FBNH, Guaranty Trust Bank, Transcorp, Zenith Bank and UBA.
Julius Berger and Linkage Assurance were the best-performing stocks during the session, gaining 10% each, closing at N26.95 and N0.55 per share on bonus shares and market sentiment. On the flip side, Guinness Nigeria and PZ lost 9.4% and 9.1% respectively, closing at N20.30 and N4.00 per share respectively, on selloffs.

Market Outlook
We expect profit taking to continue since the index had formed another double top on mixed sentiment and negative news on the oil price 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.
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https://investdata.com.ng/2020/04/profit-taking-ahead-as-ngse-index-forms-double-top-on-mixed-sentiments-oil-price-decline/