NGSE Market Confidence Soars Higher, As Smart Money Sees Opportunities For Juicier ROI

Market Update for June 2

It was another positive outing on the Nigerian Stock Exchange (NSE) on Tuesday as trading volatility waxed stronger for the third consecutive session and extending a headstrong advance. The composite All-Share index closed higher on a mixed sentiment and higher traded volume extending the two months of bull trend. This rally has been incredibly resilient, shrugging off profit-taking and weak economic fundamentals and other realities.

Technically, smart money has been positioning in the market as revealed by money flow index hitting the highest of 92.98 points since January 23, 2018, and the market has equally been a higher-high over the past five trading session on mixed volume. This pattern is playing out as the market approaches a strong resistance level and 200-day moving average. A breakout of the 200-DMA will confirm a buy opportunity for long-term positioning, but a pullback at this point will create another short term buying opportunity.

As an investor and trader, understanding the big picture of the global and domestic economic reset that is ongoing will help you stay in turn with the market’s direction, as well as leading stocks and sectors. In the five stages of an economic cycle namely- early, middle, and late expansion, as well as early and late contraction, which are the tough periods that are followed by recovery. At this time, investors should know which sectors or stocks to invest in, using economic indicators to identify the stages the economy is.

The indicators to look out for here are interest rates, inflation and industrial productivity. The Nigerian economy today, is at the late contraction stage, with interest rates on the decline, rising inflation rate and declining economic output.

Moving into recovery will, therefore, be a function of well-articulated policies, economic reforms and interventions needed to drive the all-expected recovery. The recent cut in MPR from 13.5% to 12.5% is a good move that will jumpstart the economy again after the Purchasing Managers’ Index (PMI) for the month of May dropped to 42.2 points from 51.1 points in March, below 50 point, confirming that a contraction is ongoing.

Tuesday’s trading opened on the upside in the morning and was sustained throughout the session, despite oscillating on position taking and profit booking in some equities that pushed the NSEASI to an intraday high of 25,458.53 basis points, from a low of 25,316.24bps. Thereafter, it closed the day higher at 25,383.43bps on very high volume.

Market technicals were positive and mixed, with higher volume traded than the previous session’s, in the midst positive breadth and  mixed sentiment as revealed by Investdata’s Daily Sentiment Report, showing a ‘buy’ position of 47% and sell volume of 53%. Total daily transaction volume index stood at 1.30, just as energy behind the day’s performance stayed strong, with Money Flow Index reading 92.98points, up from the previous 87.78ps, indicating entrance of funds to the market and some stocks.

Index and Market Caps

The benchmark NSEASI at the close of trading gained 67.28bps, closing at 25,383.43ps, from the 25,321.29bps it opened, representing a 0.27% rise, while market capitalisation rose by N47.9bn to N13.24tr from N13.19tr which represented a 0.27% value gain in investors’ portfolio.

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Tuesday’s upturn followed gains by Dangote Cement, MTNN, Guaranty Trust Bank, Zenith Bank, NB, Dangote Sugar, FBNH, and AIICO, among others which impacted mildly on the NSE’s benchmark index, reducing its Year-To-Date loss to 5.43%. Market capitalization YTD gains stood at N283.12bn, representing a 2.18% up from the year’s opening level.

Mixed Sector Indices

Performance indices across the sectors were mixed, as the NSE Insurance and Industrial Goods were up by 0.42% and 0.20% respectively, while the NSE Consumer Goods and Banking indexes dropped by 0.13% and 0.09% respectively, as the NSE Oil/Gas closed flat.

Market breadth remained positive with advancers outpacing decliners in the ratio of 28:10, while activities in volume and value terms climbed 49.2% and 128.9% up respectively, while investors exchanged 377.88m shares worth N6.06bn, compared to previous day’s 252.31m units valued at N2.65bn. This volume was driven by trades in Nigerian Breweries, Guaranty Trust Bank, Zenith Bank, AIICO and FBNH.

Neimeth Pharmaceuticals and University Press were the best performing stocks for the day after gaining 9.84% and 9.65% respectively, closing at N1.34 and N1.25 per share respectively on improving earning and expectation of full year earnings.

On the flip side, Prestige Assurance and Omatek lost 10% and 9.68% respectively, closing at N0.34and N0.28per share respectively on market forces.

 Market Outlook

We expect the mixed trend to continue, despite profit-taking, as investors positioning reveals confidence among the market players while implying that opportunities are still available before the Q2-driven earnings expectation. Also, sectors that have suffered oversold offer attractive risk-reward buy opportunities and outlook for consideration ahead of the Q2 economic and corporate data.

While investors digest the impact of the MPR cut from 13.5%, corporate earnings and economic activities, the MFI is showing improved institutional investors activity in the midst of the oscillating oil prices, amidst the rising new cases of the coronavirus with the number of infected people crossing 10,000 and deaths above 280.

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.

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 are available. To obtain your pack send ‘Yes’ or ‘Stock’ to 08028164085, 08032055467, 08111811223 now.

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