Equities May Get Boost, As Soaring Inflation Threatens Other Asset Classes

Market Update for July 22

The nation’s stock market remained on the downward path, closing midweek’s trading flat, while side-trending on a very high traded volume and amidst selling pressure, even as more companies released their half-year earnings reports which came mixed. Companies that presented their reports on Wednesday were Jaiz Bank, SAHCO and Chemical & Allied Products. The result from Jaiz Bank was impressive as revealed by its numbers, which showed quality and value earnings, growing top and bottom lines by 39.37% and 43.87% respectively, which translated to four kobo Earnings Per Share, up from three kobo posted in the corresponding period of 2019. The numbers from SAHCO and CAP were however unimpressive as expected, reflecting the gloomy economic situation which still subsists.

It has been a period of intense struggle for the equity segment of the financial market through the better part of July, as traders nurse fear of possible disappointing half-year earnings on the impact of inconsistent policies of the government that has been more than exposed by the outbreak of the Coronavirus pandemic.

Meanwhile, going by the history of half-year earnings released dates; most companies will start unveiling their respective numbers from this week.

The beauty of the situation is that investors have already discounted negative expectations from prices before now following which companies that outperform investor expectations will experience a strong leap from the bear. It is for the reason that the prices have been discounted for the expected poor performances that they may not seriously drop.

We note that there are some banking stocks with high upside potentials and yields are at their ‘buy’ point ahead of half-year earnings reports.

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2019 Interim Dividend Of Selected Companies
Securities Last Int.Div Mtk Value BVPS Yields
Access Bank 0.25                  6.20              17.30          4.03
Seplat         15.00          386.00         921.35  3.88
Stanbic IBTC 1.00                  29.00              30.34          3.44
UBA         0.20                  6.15              17.00          3.25
Airtel Africa 9.20                  348.00                          2.64
MTNN         2.95                  118.00              9.61             2.50
Nestle         25.00           1175.00     71.29          2.12
Custodian Inv 0.10                  4.80             7.55          2.08
Zenith Bank 0.30                  15.75             30.00          1.90
AXA Mansard 0.03          1.58             2.18          1.89
NB                 0.50                  30.00             20.34          1.66
Guaranty Trust 0.30          21.50             23.24          1.39

Midweek’s trading opened slightly on the upside and stayed so into the mid-morning before oscillating for the rest of the day on selling and buying forces that pushed the key performance index to an intra-day low of 24,173.53 basis points, from its high of 24,330.06bps. Thereafter, it close the session flat at 24,173.53bps on a very high traded volume and negative sentiment that supports pattern reversal, but investors and traders should await a confirmation.

Market technicals for the session were weak and mixed with higher volume traded than the previous session in the midst of a flat breadth and high selling pressure as revealed by Investdata’s Daily Sentiment Report, showing a ‘sell’ volume of 100%. The total daily transaction volume index stood at 1.92, just as energy behind the day’s performance stayed weak, with Money Flow Index reading 33.70 points, as against the previous 22.20ps, indicating that funds entered the market despite closing flat.

Index and Market Caps

At the end of Wednesday’s trading, the composite NSE All-Share Index was flat after shedding 0.92 basis points, to close at 24,173.53bps, from an opening figure of 24,174.45bps, representing 0.004% drop, just as market capitalization lost N477m, closing at N12.61tr from an opening value of N12.61tr, representing 0.004% value loss.

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Midweek’s slight decline resulted from losses suffered by GSK, Africa Prudential, Caverton, United Capital, Sterling Bank and Fidelity Bank, which impacted mildly on the NSE’s benchmark index’s Year-To-Date loss, raising it to 9.94%. Also, market capitalization YTD loss stood at N348.04bn, representing a 2.69% drop from the year’s opening level.

Bearish Sector indices                                                                 

The sectoral performance indexes were mixed and dull; except for the NSE Oil/Gas that closed marginally green at 0.04%. The NSE Insurance index led the decliners after losing 0.64%, followed by the NSE Banking which was down by 0.03%, while NSE Industrial and Consumer Goods were flat.

Market breadth was at equilibrium, as advancers were equal to decliners in the ratio of 9:9, while transactions in volume and value terms were up by 32.37% and 39.34% respectively, as investors exchanged 402.64m shares worth N4.55bn, from the previous 304.19m units valued at N3.27bn. Volume was boosted by trades in UACN, Nigerian Breweries. Multiverse, Sterling Bank and FBNH.

Eterna and May & Baker were the best performing stocks for the day, after gaining 8.89% and 7.91% respectively, closing at N1.96 and N3.00 per share on market forces and sentiment for healthcare stocks ahead of their quarterly results. On the flip side, GSK and Consolidated Hallmark Insurance lost 9.52% and 8.16%, closing at N4.75 and N0.45 per share respectively on profit booking.

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 down at 35.64, 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.

NB:The home study packs and videos that will help you prepare and take advantage of the current happening in the market and economy are available at Investdata. How to invest or trade profitably in changing market dynamics and recession. Mastering earnings season for profitable investment To obtain your pack send ‘Yes’ or ‘Stock’ to 08028164085,08032055467, 08111811223 now.

 Ambrose Omordion

CRO|Investdata Consulting Ltd
info@investdataonline.com
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