Amidst Rising Inflation, Migration To Equity Assets Boosts NGSE Index

Market Update for July 27

Highly capitalized stocks gave the Nigerian Stock Exchange (NSE) a much-needed boost on Monday to start the week on strong after closing higher, enough to completely wipe off the previous loss suffered by the benchmark All-Share index. The gain was however on a low traded volume and despite the day’s negative breadth.

The candlestick formation supports bullish pattern, as the index trades above its 20 and 50-Day Moving Average on gradual return of funds into equity assets as revealed by money flow index indicating activities of smart money.

The mixed sentiments and continued volatility are clear reflection of cautious trading among investors in the midst of an earnings reporting season much in line with market expectations, due to the impact of the Coronavirus outbreak and the accompanying lockdown from which the economy is yet to recover. There were however exceptions like Africa Prudential, Dangote Cement, Okomu Oil, and Lafarge Africa that recorded mixed performance, while Jaiz Bank and United Capital posted impressive numbers to stand out among the scorecards already made available to the market.

The improved buying interests in the banking and industrial goods sector were attributed to the seeming better-than-expected half-year earnings report released so far from  building materials making companies and the expected interim dividend payment from Stanbic IBTC, Guaranty Trust Bank, Zenith Bank, UBA and Access Bank. Market data for the day revealed that investors and traders have reacted positively to the companies that posted impressive numbers.

Meanwhile, Monday’s trading opened slightly on the upside and pulled back at mid-morning as high priced stocks suffered losses, before rebounding between midday and afternoon on demand for bellwether stocks. This pushed the NSE index to an intra-day high of 24,783.61 basis points, from its low of 24,173.53bps, before closing the session higher at 24,783.61bps.

Market technicals for the day were positive and mixed as volume traded was lower than the previous session with breadth favouring the bear on strong buying sentiment as revealed by Investdata’s Daily Sentiment Report, showing a ‘buy’ position of 100%. The total daily transaction volume index stood at 0.86, just as energy   behind the day’s performance stayed weak, with Money Flow Index reading 44.35 points, as against the previous 39.01ps, indicating that funds entered some stocks, offering some hope.

Index and Market Caps

At the end of Monday’s trading, the composite NSEASI gained 355.88 basis points, to close at 24,783.61bps, from 24,427.73bps, representing 1.46% growth, just as market capitalization rose by N185.65bn, closing at N12.93tr from an opening value of N12.74tr, which representing 1.46% value gain.

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The day’s advancement was driven by positive sentiments for medium and high cap stocks like Dangote Cement, Guaranty Trust Bank, Lafarge Africa, Access Bank, UBA, ETI, FBNH, Neimeth Pharma and AIICO. This impacted positively on the NSE’s benchmark index, reducing the Year-To-Date loss to 7.67%, while market capitalization YTD turned positive, at N12.32bn, representing a 0.38% rise over the year’s opening level.

Mixed Sector indices                                                                   

Performance index across the sectors were mixed, as the NSE Banking and industrial Goods closed higher by 3.716% and 3.34% respectively, while the NSE Oil/Gas index led the decliners, after losing 5.70%, followed by the NSE Insurance and Consumer Index that fell by 1.81% and 0.32% respectively.

Market breadth was negative, as decliners outnumbered numbered advancers in the ratio of 19:15, while activity in volume and value terms were down by 5.14% and 1.8% respectively, as investors exchanged 165.24m shares worth N2.34bn, as against the previous 174.2m units valued at N2.38bn. This volume was boosted by trades in Flourmills, Lafarge Africa, FBNH, Guaranty Trust Bank and UBA.

Unity Bank and Lafarge Africa were the best performing stocks of the day, after gaining 9.62% and 9.59% respectively, closing at N0.57 and N12.00 per share respectively on market forces and improving earnings. On the flip side, AXA Mansard and UACN Property closed at N1.404 and N0.81 per share respectively on position taking.

Market Outlook

We expect inflow into the equity assets as rising inflation threatens other investment windows returns in the midst of more earnings being release to the market, positive news of coronavirus vaccine on oil price and impact of CBN policies on the economy.  Just as investors are equally worried about inconsistent government policies which have continue to dampen confidence.

This is likely to support the wave of decline as pullbacks persist, creating new entering opportunities. Money flow index has continued to look up at 38.83 despite flowing from one sector to the other, seeking value in terms of low prices with high upside potentials.

This is just as economic recovery is threatened by the rising cases of the COVID-19 pandemic, as earnings reporting season has kicked off, which implies that opportunities are still available as sectoral 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, we advise that you 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. This is despite the likely continuation of selloffs. Investors are buying to increase their positions in undervalued stocks ahead of Q2 numbers. It 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.

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.

 Ambrose Omordion

CRO|Investdata Consulting Ltd
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