NGSE Index Stay South, Amidst Influx Of Troubled Economic Data

Market Update for June 24

Equity prices on the Nigerian Stock Exchange continued its decline as the key performance indicator closed lower for the fifth consecutive trading session at the midweek with investors staying on the sidelines to watch the trend unfold.

Meanwhile, the negative sentiments are waxing stronger amidst sliding crude oil prices and resurgence of the Coronavirus pandemic across the world, which is pointing to another around of lockdown, threatening most asset classes and economic recovery. This is also coming against the backdrop of the World Economic Outlook published by the International Monetary Fund (IMF) on Wednesday showing that the impact of COVID-19 may be worse after all than previously projected. For example, while the global GDP is now projected to contract by 4.9% this year, requiring more than $12tr over a two-year period to put it back on track, Sub-Saharan Africa’s GDP could contract by 3.2%, and Nigeria, the continent’s largest economy shrinking by as much as 5.4% (READ MORE).

The renewed concerns over tariffs and trade are compounding fears around the globe, amidst worries over its toll on employment, even as governments are going into deep debts to stem the crisis and its negative impact. This means more spending for the government at all levels, with Nigeria Federal Government approving N2.3tr stimulus to overcome the crisis. This was announced after a meeting of the Federal Executive Council (FEC), in what the Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, said followed the approval of the Nigeria Economic Sustainability Plan (NESP), chaired by Vice President Yemi Osinbajo. The nation’s fiscal crisis, according to IMF, is caused by it low revenue-generating capacity, especially now that oil prices are relatively low, rather than its high debt profile. The World Bank also projected that Nigeria’s economy will contract by 5.4% in 2020. The investors could just await the implementation of the NESP and the CBN’s stimulus package aimed at reducing the impact of the unfolding global economic crisis.

The wobbling macroeconomic indices are pointers to the fact that all is not well with the economy in the face of COVID-19 as recession is at corner ahead of Q2 GDP data, while manufacturing Purchasing Managers Index (PMI) fell further in the month June. PMI for the month of June, according to data by the Central Bank of Nigeria (CBN) stood at 41.1 points, down from 42.1 and 51.1 points in May and March 2020 respectively, reflecting a contraction and rising level of unemployment due to the spiral effects of COVID-19.

As we have always noted, in any market situation there are opportunities, especially with the earnings season around the corner, changing the market momentum and action. You don’t have to be smart to make money in the stock market because the way it moves is always changing. As such, what you need is to think differently and educate yourself, using home study packs and videos, especially mastering the earnings season for profitable trading and investing in any market situation/cycle.  That means, we do not equate an “up” market with a “good” market and vice versa. Market present different opportunities to make money at different time.

Meanwhile, midweek’s trading opened slightly on the positive side until the mid-morning, before oscillating for the rest of the session as investors and traders took position, and booked profit amidst selloffs across various sectors. This pushed the All Share index to an intraday low of 24,636.63 basis points, from its high of 24,771.97bps, before finally closing the session lower at 24,654.99bps on a low traded volume.

Midweek’s market technicals were negative and mixed, as volume traded was higher than the previous session, just as breadth favoured the bears, just as there was high selling  pressure as revealed by Investdata’s Daily Sentiment Report, showing a ‘sell’ position of 84% and buy volume of 14%. Total daily transaction volume index stood at 0.71, just as momentum behind the day’s performance stayed weak, with Money Flow Index reading 21.61points, down from the previous 31.36ps, indicating that funds exited the market sharply on selloffs.

Index and Market Caps

At the end of Wednesday’s session, the composite NSE All-Share Index shed 95.07 basis points, closing at 24,654.99bps from the 24,751.32bps, representing a 0.38% decline, while market capitalization lost N49.56bn at N12.86tr from an opening value of N12.91tr, which represented a 0.29% loss in value.

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The day’s downturn was due to price drop in stocks like Seplat, Guaranty Trust Bank, Nigerian Breweries, PZ, GSK, Guinness, Vitafoam, Flour Mills, Access Bank, Custodian Investment and UACN. This impacted negative on the NSE’s benchmark index, increasing its Year-To-Date loss to 8.15%, as market capitalization YTD loss rose to N96.85bn, representing a 0.75% drop from the year’s opening level.

Mixed Sector indices 

Performance across the sectors were mixed as the NSE Oil/Gas and Consumer Goods indexes shed 4.11% and 1.83% respectively, while the NSE Insurance and Banking indexes closed marginally up by 0.87% and 0.24% respectively.

Market breadth remained negative as decliners outweighed advancers in the ratio of 22:17, while activities in volume and value terms rose by 12.68% and 23.82% respectively to 189.25m shares worth N1.92bn, from the previous day’s 167.89m units, valued at N1.55bn. The day’s volume was boosted by trades in FBNH, Zenith Bank, Access Bank, Japaul Oil and UBA.

Chams and Champion Breweries were the best performing for the day, after gaining 9.52% and 7.95%, and closing at N0.23 and N0.95 per share respectively on market forces. On the flip side, PZ and Seplat lost 10% and 9.98% respectively, closing at N0.60 and N11.90 per share respectively on selloffs and profit taking.

Market Outlook

Amidst the indecision and unwillingness by traders to buy at this current market value, the bearish wave will persist on pullbacks, creating new entering positionsat the end of Q2 earnings season, as the Money Flow Index continues its downward slant, revealing the exit of smart money, despite 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 Central Bank of Nigeria (CBN) interventions, ahead of the Q2 earnings reports, implying yet 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. For immediate liquidity or cash let us trade low priced stocks with serious caution to avoid being trap.

However, the market’s high dividend yield continues to attract buying interests, as few 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 Q2 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.

 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.

NB: The home study packs of our Invest 2020 Opportunities and Trade Ideas Summit, containing different Stocks for various investment objectives in 2020 and beyond, How to invest or trade profitably in a changing market dynamics and recession and mastering earnings season for profitable investment are available. To obtain your pack send ‘Yes’ or ‘Stock’ to 08028164085, 08032055467, 08111811223 now.

 Ambrose Omordion

CRO|Investdata Consulting Ltd
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