Sustained Selloffs Yet, As Investors Position In Undervalued Stocks

Market Update for June 25

Selling pressure on the Nigerian Stock Exchange (NSE) continued Thursday, but at a reduced momentum amidst indecision and negative sentiments arising from the fear of Coronavirus (COVID-19) resurgence. This has been made worse by the political crisis that has engulfed Nigeria’s ruling All Progressives Congress (APC); the nation’s wobbling economic data, oscillating oil prices threatens recovery, all of which are keeping the composite All-Share Index south for the sixth successive session on a low traded volume.

The decline in market activity and the continued negative trend reflect cautious trading among investors with the Bollinger bands becoming narrower than normal to suggest low volatility when compared to the active trading sessions and range. As mentioned in our previous market updates, investors are already factoring in the expected Q2 earnings reports which are likely to be disappointing as a result of the virus-induced economic downturn and lockdown.

As we have always noted also, in any market situation there are opportunities, especially with the earnings season around the corner to change 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. Markets present different opportunities to make money at different times.

Thursday’s trading started on the downside and sustained it throughout the session with only two of the five major sectors active and down whereas others recorded flat activities. Profit-taking pushed the NSE index to an intra-day low of 24,619.84 basis points, from its high of 24,662.27bps, before closing the day lower at 24,625.17bps on flat breadth.

Market technicals were mixed and weak as volume traded was lower than the previous session, in the midst of positive breadth and high-selling pressure as revealed by Investdata’s Daily Sentiment Report, showing a ‘sell’ position of 87% and buy the volume of 13%. Total daily transaction volume index stood at 0.49, just as the energy behind the day's performance stayed weak, with Money Flow Index reading 22.66points, up from the previous 21.61ps, indicating that funds entered some stocks despite the down market.

Index and Market Caps

The All Share index at the close of Thursday’s trading fell by 29.75 basis points, closing at 24,625.17ps from the 24,654.99bps, representing a 0.12% drop, while market capitalization lost N15.55bn, closing at N12.85tr from an opening value of N12.86tr which represented a 0.12% value depreciation.

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Thursday’s downturn was due to selloffs in stocks like MTNN, Zenith Bank, FBNH, Nahco, and livestock feeds, which impacted mildly on the NSE’s benchmark index, increasing its Year-To-Date loss to 8.32%, as market capitalization YTD loss increased to N112.4bn, representing a 0.87% drop from the year’s opening level.

Mixed Sector indices 

The sectorial performance indexes were mixed as the NSE Insurance and Banking indexes lost 0.34% and 0.18% respectively, while the NSE Industrial Goods, Consumer Goods, and Oil/Gas indexes closed flat. Market breadth was positive and flat as advancers outnumbered decliners in the ratio of 9:8, while transactions in volume and value terms dropped by 31.16% and 15.24% respectively to 130.28m shares worth N1.62bn, from midweek’s 189.25m units, valued at N1.92bn. Volume was boosted by trades in Zenith Bank, Transcorp, FBNH, Mutual Benefits Assurance, and Guinness Nigeria.

Neimeth Pharm and Wema Bank were the best performings for the day, after gaining 9.65% and 9.09%, and closing at N1.25 and N0.60 per share respectively on market sentiment and forces. On the flip side, Linkage Assurance and Japaul Oil lost 9.43% and 7.69% respectively, closing at N0.48 and N0.24 per share respectively on selloffs and profit-taking.

Market Outlook

Being the last trading day of the week, we expected the market to sustain this trend amidst of indecision and unwillingness by traders to buy at this current market value, the bearish wave will persist on pullbacks, creating new entering positions at the end of Q2 earnings season, as the Money Flow Index continues its downward slant.  This has revealed that smart money is exiting the market, 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 the Central Bank of Nigeria (CBN) interventions, ahead of the Q2earnings 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 trapped. 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 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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