NGSE Index Records Marginal Gains, As Investors Consider Impact Of Economic Realities

Market Update for June 17

The Nigerian Stock Exchange’s key performance index closed marginally higher at the midweek short-living three successive sessions of losses on a strong buying interest in Consumer Goods as sectoral rotation continued ahead of the Q2 earnings reporting season.

The selloffs and mixed sentiment that persisted on the exchange as bears took over the market in the early hours of the day until the afternoon when demand for manufacturing stocks reversed the earlier losses on low traded volume. The day’s gain was supported by price appreciation in the shares of Nestle, Flourmills, Cadbury, Access Bank and Zenith Bank.

The National Bureau of Statistics, on Wednesday, published the inflation data for the month of May, showing a 25-month high at 12.4% from 12.34% in April. This rising trend in consumer index for the ninth consecutive month was earlier attributed to the border closure government, which was made worse the outbreak of the Coronavirus pandemic, especially the accompanying lockdown to curtail the spread of the virus. This triggered high cost of goods and services, especially transporting food items and continued insecurity which impacted prices of commodities.

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Meanwhile, midweek’s trading opened on the downside and oscillated between the midday to afternoon on buying interests and selloffs among the low and high cap stocks that rallied recently, pushing the composite NSE All Share index to an intraday low of 24,816.45 basis points, from its high of 24,973.59bps, before finishing higher at 24,972.94bps on a negative breadth.

The day’s market technicals were positive and mixed with higher volume traded than the previous session’s in the midst of breadth that favored the bears on a high buying pressure as revealed by Investdata’s Daily Sentiment Report, showing a ‘buy position of 100%. Total daily transaction volume index stood at 0.89, just as the momentum behind the day’s performance stayed relatively strong, with Money Flow Index reading 64.34 points, dropping from the previous 64.34ps. This indicates that funds are leaving the market on profit taking.

Index and Market Caps

NSE’s benchmark index, at the close of midweek’s trading gained a marginal 42.06 points, closing at 24,972.94bps, from the 24,930.88bps it opened, representing a 0.17% growth, while market capitalization rose by N37.12bn to N13.03tr from an opening value of N13.01tr, representing a 0.17% value gain.

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Midweek’s upturn was boosted by buying interests in medium and high cap stocks like Nestle, Cadbury, Flour Mills, Zenith Bank, Access Bank. This impacted positively on the NSE’s benchmark index, reducing the NSE’s Year-To-Date loss to 6.96%, while market capitalization YTD gains stood at N56.24bn, representing a 0.53% rise from the year’s opening level.

Bearish Sector Indices

Performance indices across the sectors were largely down, except for the NSE Consumer Goods index that closed 4.19% higher, while the NSE Oil/Gas index led the decliners after shedding 4.37%, followed by the NSE Insurance and Banking with 2.95% and 0.79% respectively.

Market breadth was negative as the decliner’s outnumbered advancers in the ratio of 24:10, while activities in volume and value terms were up by 32.78% and 70.86% respectively to 200.39m shares worth N1.59bn, from the previous day’s 200.37m units, valued at N1.59bn. This volume was driven by trades in Guaranty Trust Bank, UACN, FBNH, FCMB and Access Bank

Nestle and Cadbury were the best performing stocks of the day, after gaining 10% and 6.70% respectively, closing at N1,094.00 and N8.00 per share respectively on market forces.  On the flip side, Seplat and Neimeth Pharm lost 10% and 9.56% respectively, closing at N426.80 and per N9.56 share respectivelyon profit taking and market forces.

Market Outlook

Market dynamics reveal that players are afraid to buy at this level, waiting for pullbacks to take a plunge as money is flowing from one sector to another seeking value in term of low prices with high upside potentials.  This is just as economic recovery is expected to come fast on government and CBN interventions, ahead of May inflation figure and Q2 earnings reports. This also implies that opportunities are still available as sectorial rotation continues. Also, sectors that have suffered oversold, so far, offer attractive risk-reward buy-opportunities and outlook for considerable short, medium and long term investment.

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.

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 Ambrose Omordion

CRO|Investdata Consulting Ltd

https://investdata.com.ng/ngse-index-record-marginal-gains-as-investors-consider-impact-of-economic-realities/