NGSE Indicators Soar Higher On Improved Sentiments, Amidst Cautious Wait For Economic Data

Market Update for May 19

Tuesday’s trading on the Nigerian Stock Exchange (NSE) was bullish once again on the gains of medium and large-cap company shares that pushed the benchmark All-Share index higher. The strong buying interest in banking stocks, as well as Dangote Cement, Unilever, Okomu Oil, and Presco, extended previous day’s positive outlook and sentiments.

The composite index finally broke out the short-term bearish channel trend line on a high traded volume as mentioned in our previous updates, confirming a steady recovery in the face of corporate earnings inflow with mixed performance. BUA Cement and Studio Press made their 2019 full year financials available to the market on Tuesday, with the cement company proposing a dividend of N1.75 per share.

The back-to-street sentiment and activities that are driving crude oil price at the international market continue to support the local bourse with the seemingly stable demand for Nigeria’s Brent crude, as the price heads back to pre-coronavirus levels after touching $34 per barrel during Tuesday trading, with normalcy gradually returning to the global economy. This is positive news for the nation’s economy and government.

The movement in banking stocks during the session has increased price-to-earnings ratios of the banks, even as Q2 earnings are likely to come worse than the first quarter, thereby impacting their valuations across board.  It is necessary to buy the above resistance but to avoid buying at a higher price, study your environment to know when to hold cash or value positions.

Tuesday’s trading started in the green and was sustained for the rest of the day, amidst position-taking that pushed the NSE’s performance indicator to an intraday high of 24,205.89 basis points, from a low of 23,943.29ps, after breaking out the 24,000 marks to close the session higher at 24,202.87bps on a high volume.

Market technicals for the day were positive and strong with volume higher than the previous session’s, in the midst of positive breadth and buying sentiments as revealed by Investdata’s Daily Sentiment Report, showing a ‘buy’ volume of 99%. Total daily transaction volume index stood at 1.18, while the momentum behind the day’s performance stayed strong. Money Flow Index read 81.51points, up from the previous 81.08ps, indicating funds are returning to some stocks.

Index and Market Caps

At the close of Tuesday’s trading, the lead performance indicator gained 261.12bps, closing at 24,202.87ps, from the opening level of 23,941.75ps, representing a 1.09% growth, while market capitalization rallied by N136.09bn to close at N12.61tr, from the opening value of N12.48tr which represented a 1.09% appreciation in an investors portfolio.

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The day’s advancement was driven by position taking in stocks like Dangote Cement, Guaranty Trust Bank, Zenith Bank, Okomu, Prseco, BUA Cement, UBA, Fidelity Bank, Access Bank, FBNH, Unilever, Stanbic IBTC and Transcorp. This impacted positively on the NSE’s benchmark index, reducing its Year-To-Date loss to 9.83%, while market capitalization YTD decline stood at N346.09bn, representing a 2.59% drop from the year’s opening level.

 Bullish Sector Indices

All the sectorial performance indexes were up, while NSE Banking index led the advancers, after gaining 2.08%. It was followed by the NSE Industrial Goods and Insurance with 0.78% and 0.41% higher, just as the NSE Consumer goods and Oil/Gas was up by 0.33% and 0.24% up respectively.

Market breadth, remained positive as advancers outnumbered decliners in the ratio of 29:8, while transactions in volume and value terms were up by 2.65% and 33.79% respectively, as investors exchanged 339.76m shares worth N3.92bn from the previous day’s 331m units valued at N2.93bn. This volume was boosted by trades in Access Bank, Zenith Bank, Sterling Bank, FBNH and Lafarge Africa. 

The best-performing stocks for the session were Caverton and Okomu Oil, which gained 10% and 9.99%, closing at N2.75 and N64.40 per share on full year earning expectation and market sentiment.  On the flip side, Lasaco Assurance and Nahco lost 8% and 4.51% respectively, closing at N0.23 and N2.33 per share respectively, on selloffs.

 Market Outlook

We expect this trend to continue in the face of profit-taking, price adjustment, qualification dates, and positioning as players react to the impressive corporate earnings and dividend payouts. This is just as the April inflation numbers and 2020Q1 GDP are expected from the National Bureau of Statistics (NBS), even as MFI reveals improved institutional investors' activity in the midst of oil and stock price recovery.

However, the rising new cases of the coronavirus pandemic spread, and its negative impact on the economy remains of grave 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