Investors Stay Cautious On NGSE, Amidst Profit-taking, Reactions To Corporate, Economic Data

Market Update for May 18, 2020

Equity prices on the Nigerian Stock Exchange (NSE) on Monday closed higher, reversing the previous session’s negative stance amidst strong buying sentiments as it tested the short-term bearish channel trend line for a breakout on a high traded volume that jacked up the lead performance indictor. 

The positive sentiment came as crude oil prices sustained recovery with the gradual return of normal life after months of lockdowns as many governments moved to curtail the spread of deadly Coronavirus (COVID-19) pandemic, which changed the demand pattern for oil. Recall that before then, there was a production cut agreement reached by members and non-members of the Organisation of Petroleum Exporting Countries (OPEC) cartel, arising from the historical price crash. Investors have continued to react positively to recent corporate earnings, while taking advantage of low prices to position in high yields stocks, even as there is noticeable inflow of funds from institutional investors targeting defensive and ‘safe’ stocks in the low yield environment, taking note of the inherent risk in other investment windows.

The short-term recovery move in a long bearish market continues, irrespective of the seeming divergence from economic fundamentals and events, following which we call for cautious play by traders. Investors, on the other hand, should gradually realign their portfolios ahead of another price correction when Q2 earnings score-cards and other economic data start confirming the weak state of the economy and, in the process, trigger adjustments in price levels and valuations.

Meanwhile, Monday’s trading opened on the upside and was sustained throughout the day, despite the fluctuating profit-taking and positioning that pushed the NSE composite index to an intraday high of 24,010.19bps, from a low of 23, 831.33ps, before finishing the session higher at 23,941.75ps on a positive breadth.

Monday’s market technicals were positive and strong with volume higher than the previous session, in the midst of positive breadth and strong buying pressure as revealed by Investdata’s Daily Sentiment Report, showing a ‘buy’ volume of 100%. Total daily transaction volume index stood at 1.16, while the impetus behind the day’s performance stayed strong. Money Flow Index read 81.08points, up from the previous 79.89s, indicating funds are returning to some stocks.

Index and Market Caps

The NSE All Share index, at the end of Monday’s trading gained 70.42ps, closing at 23,941.75ps, from the opening level of 23,871.33ps, representing a 0.29% rise, while market capitalisation rose by N36.69bn to close at N12.48tr, from the opening value of N12.44tr, and representing a 0.29% value gain. Also the share price of Nestle was adjusted for final dividend of N45.

If you are yet to sign up for Investdata buy and sell signal setup, don’t delay. We have just added another risk management feature and six categories of stocks to see you through in this changing market dynamics and economic uncertainty.  These stocks are with double potentials to rally and protect your funds considering their current market prices. To become a member, send ‘YES’ or ‘STOCKS’ to the phone numbers below. Take advantage of this service to buy right and sell right at this current market oscillation and earnings reporting season for portfolio realignment and positioning as we await an economic reform policy to stimulate and re-track the economy again.

The upturn on Monday was impacted by demand for MTNN, Guaranty Trust Bank, Zenith Bank, BUA Cement, Okomu, Lafarge Africa, Wema, Access Bank, FBNH, FCMB, Unilever, Vitafoam, International Brewery and Fidson.  This impacted positively on the NSE’s benchmark index, reducing its Year-To-Date loss to 10.8%, while market capitalization YTD decline stood at N481.18 billion, representing a 3.68% drop from the year’s opening level.

 Mixed Sector Indices

Performance across the sectors were mixed and largely bullish, except the NSE Insurance  and Oil/Gas that closed lower by 1.08% and 0.08% respectively, while NSE Industrial Goods index led the advancers, after gaining 0.94%. It was followed by the NSE Consumer Goods and Banking with 0.63% and 0.51% up respectively.

 Market breadth, remained positive as advancers outnumbered decliners in the ratio of 25:13, while market activity in terms of volume and value were up by 49.47% and 19.65% respectively, as investors exchanged 330m shares worth N2.93bn from the previous day  221.45m units valued at N2.45bn. This volume was boosted by trades in Access Bank, Zenith Bank, Sterling Bank, FBNH and Lafarge Africa. 

Okomu Oil and Neimeth Pharm were the best-performing stocks for the day, gaining 9.99% and 9.72%, closing at N60.55 and N0.79 per share on dividend qualification and positive sentiment for healthcare stocks.  On the flip side, Lasaco Assurance and Cornerstone Insurance lost 7.41% and 6.78% respectively, closing at N0.25 and N0.55 per share respectively, on profit-taking. Also on Monday, the board of the Transnational Corporation of Nigeria Plc (Transcorp) published its first-quarter score-card with profit dropping by 96.14%, which it blamed on the impact of the COVID-19 pandemic, warning that the rest of the year may not be robust like initially projected (READ MORE).

 Market Outlook

We expect this trend to continue in the face of profit-taking, price adjustment, qualification dates and positioning as players react to impressive corporate earnings and dividend payout, as April inflation numbers and 2020Q1 GDP are expected from NBS, even as MFI reveals improved institutional investors activity in the midst of oil and stocks price recovery. Just as the rising new cases of the virus spread and negative impact on the economy remain a concern.

However, the market’s high dividend yield continues to attract buying interests, while more audited and unaudited corporate earnings will hit the market, going forward, despite the likely continuation of selloffs. Investors are buying to increase their positions in undervalued stocks ahead of dividend declaration and Q1 numbers. This is also against the backdrop of the fact that the capital wave in the financial markets 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 amidst the changing sentiments in the hope of improved liquidity and positive economic indices that may reverse the current trend. We see investors focusing on the upcoming full-year earnings season, targeting companies with strong potentials to grow their dividend on the strength of their earnings capacity.

Again, the current undervalued state of the market offers 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 going forward.

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.

Ambrose Omordion

CRO|Investdata Consulting Ltd

https://investdata.com.ng/investors-stay-cautious-on-ngse-amidst-profit-taking-reactions-to-corporate-economic-data/#more