Profit-taking, Portfolio Rebalancing Still On NGSE, Amidst Weakening Data

Market Update for the Week Ended June 5 and Outlook for June 8-12

Trading on the Nigerian Stock Exchange (NSE) in the first week of June was mixed, slowing down two weeks of bull rampage on-trend consolidation after profit-taking hit the market on Thursday and Friday with traders cashing out gains recorded in blue-chip stocks during the most recent rally.

The pullback is expected, after the strong recovery moves of the past two months that pushed prices and indexes into an overbought region on the back of positive sentiments, as well as high yields as corporate earnings and actions continue to attract inflow into equity assets.

This had been supported by a strong recovery in crude oil prices at the international market hitting a three-month high at $41 per barrel on impressive reports of recovery in China’s economy and improvement in the U.S job data released within the period under review.

In normal times, the devaluation of money would have been a recipe for lower standard of living in any country. But at a time in the world when everyone is in the same boat, and governments are following the same script across the world, this may just be a global reset of economies, prices and wages that will affect business environments positively or negatively going forward.

The global economy is likely to recover faster than expected judging by how oil price continues to rebound, complimented by the way governments and central banks are stimulating their economies, with a cocktail of packages and interventions to mitigate the effects of the Coronavirus spread.

The seeming correction after a sharp divergence between the market’s rally and economic fundamentals/realities are likely to trap some market players that jumped into positions at the beginning of the month. This is because technical tools have earlier signaled a reversal that calls for caution as we had earlier advised, knowing that fundamentals at this time are terribly weak, shaky and unable to propel any pullback strong enough to create new buy opportunities. It is also no enough to support a stronger recovery wave after the profit-taking and assets revaluation that will follow the expectedly weak Q2 corporate and economic data now being factored into asset prices.

Movement Of NSEASI

In the five trading sessions of the week, the composite index recorded three up markets and two down sessions to short-live the two-week bull-run, after opening Monday’s trading on a positive note, gaining 0.21% on a buying interest.  This was sustained on Tuesday and Wednesday, when the NSE index improved, closing 0.27% and 0.10% higher respectively, before pulling back on Thursday and Friday by 0.38% and 1.17% respectively on profit-taking and assets revaluation. These brought the week’s loss to 1.00%, as against the previous of 0.25% gain, which put the recovery on hold, amidst the low traded volume and mixed sentiment.

The NSE’s All Share index shed 251.52 basis points at the week’s close, after opening at 25,267.92bps, touching an intra-week high of 25,458.53bps from its low of 24,875.56bps on a high selling pressure and profit taking. This signaled the onset of the distribution stage of the market cycle and calls for caution, because decline phase is underway in the form of price correction. This is made worse by oncoming dividend qualification dates and markdown of many low and medium scale stocks. At the end of Friday’s trading, the market closed lower at 25,016.30ps, compared to previous week’s close, remaining above the 25,000bps level.

In the same vein, market capitalization lost N120bn, closing at N13.05tr from the previous weekend’s N13.17tr, representing a 0.90% value loss in investors’ portfolios. The difference between both indicators reflected the listing of additional 15.96bn shares of UACN Property Development Company, following its recent rights issue, and the price adjustment in the shares of Julius Berger for the dividends of N2 per share and one-five bonus shares; as well as the N6.71 dividend by Total Nigeria.

During the period, 10 companies published their corporate earnings, comprising five 2019 audited results from Charms, Pharma Deko, Skyway Aviation, Japual Oil, Abbey Mortgage Bank and Prestige Assurance, whose directors recommended a bonus share of new two ordinary shares for 11 held. Others were quarterly reports from 11 PLC, Prestige Assurance, Fidson Healthcare and Trans-nationwide express.

Low cap stocks that recently released their corporate earnings and declared dividends dominated the advancers’ table for the week with their qualification dates drawing closer. This reflected on their share prices, despite the negative market breadth, as decliners outweighed advancers in the ratio of 39:26. Just as the momentum behind the week’s performance remained weak, despite the Money Flow Index read 39.81bps, up from 32.98bps in the previous week.

Technically, the NSE’s index action signaled weakness, despite the bullish MACD as it has crossed over the signal line and the index trading flat on the 21-day moving average, within the bearish channel and testing the upper Bollinger band line on 75% sell volume, while the money flow index closed brighter. On a weekly time frame, it is looking down, reading 39.81, breaking out from the short bearish channel. The RSI has turned south, reading 48.90, just as momentum behind the market recovery has paused, while smart money sells for profit to reposition their portfolios ahead of the second-half of the year in the face of the ongoing global economic reset and the impending recession.

The trending strength behind the NSE’s index has weakened as the ADX weekly time frame reads 24.97 points, on mixed sentiments as revealed by Investdata’s Sentiment Report for the week, showing 75% ‘sell’ volume and buy position of 25% with the transaction volume index at 0.94

Bearish Sectoral Indices

All the sectorial performance indexes were down, with the exception of the NSE Consumer Goods index that closed 0.25% marginally high, while the NSE Industrial Goods index led the decliners after losing 3.14%, followed by the NSE Banking, Oil/Gas and Insurance which lost 1.81%, 1.35% and 0.67% respectively.

Market transactions in terms of volume and value were up by 16.67% and 74.44% respectively, as investors exchanged 1.47bn shares worth N23.55bn from the previous week’s 1.26bn units valued at N13.50 bn. The week’s volume was boosted by trades in financial services stocks, especially FBNH Holdings, Guaranty Trust Bank and Zenith Bank.

The best-performing stocks for the week were Neimeth Pharmaceuticals and Skyway Aviation which gained 56.64% and 50.83% respectively, closing at N1.77 and N2.73 per share on positive market sentiment and dividend of 0.165 kobo. On the flip side, Afromedia and Julius Berger lost 23.08% and 22.73% respectively, closing at N0.20 per share and N21.25 per share on market forces and price adjustment for cash and bonus dividend.

Market Outlook

The market since the last few trading days of May and the early sessions of June formed a bullish wedge of consolidation that led to midweek’s pause to signal resistance that ushered in the distribution stage after an uptrend or markup that the market has witnessed in recent times. The sector’s rotational wave will help investors to cash in on low cap stocks and sectors that had suffered huge losses before now. Already investors are looking the way of healthcare, Airline services providers, among sectors likely to be impacted positively in the much anticipated global and domestic economic reset.

Also, the possibility of continued funds inflow to the low priced stocks are high, due to higher yields and  upside potentials, consider the low rates in money market and  bond market. In the meantime, investors have continued to digest the score-cards and economic data released recently, as the market awaits May inflation reports from the National Bureau of Statistics to further help in repositioning their portfolios.

Investors also should look out for developments around the implementation of the Central Bank of Nigeria’s funding plan for small and medium scale businesses.

Already, we notice that investors are taking position in healthcare and other defensive stocks likely to survive this meltdown, following which there is increased transactions in them, even as global markets continue on the recovery path already, as lockdowns are gradually being relaxed.

Also, do not forget to identify and play defensive stocks among the many fundamentally sound companies, as their share prices remained depressed, making them attractive for bargain hunting by market players. This has also resulted in significant improvements in Dividend Yields of stocks, even as we note the fact that fund managers who held cash before now, may have to rethink the strategy and go for value stocks with high upside potentials.

While discerning investors should take advantage of the current low stocks valuation to position for the medium to long-term, it is noteworthy that the Nigerian equity market is selling at a discount and therefore offers high upside potential.

Expect a likely bargain-hunting motive, supported by the positive performance, especially with many fundamentally sound stocks remaining underpriced, and the dividend yield of major blue-chips continuing to look attractive in recent weeks, we expect speculative trading to shape the market’s direction, despite the seeming mixed outlook.

To position for the short to long-term, investors should target fundamentally sound, dividend-paying stocks, for possible capital appreciation in the coming months. 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
info@investdataonline.com
info@investdata.com.ng
ambrose.o@investdataonline.com
ambroseconsultants@yahoo.com
Tel: 08028164085, 08032055467
https://investdata.com.ng/ngse-index-slips-amidst-profit-taking-assets-repricing-on-expected-weak-data/