Mixed Sentiments Linger On NGSE, Ahead Of 2020 Q2 Earnings, Asset Repricing

Market Update for Week Ended July 10, And Outlook for July 13-17

Equity prices closed lower last week on the Nigerian Stock Exchange (NSE) with the benchmark All-Share index finishing on a negative note and mixed sentiment, extending the previous week’s losing momentum.

This was despite the fact that the banking sector’s index closed higher on the possible expectation of half-year interim dividend from Zenith Bank, Guaranty Trust Bank, Access Bank, UBA and Stanbic IBTC.  The banks are likely to maintain their dividend equalization policies, even as the payout for this season remains relatively small, considering the retained earnings of these banks and expected provision for non-performing loans that will hit their profit level now and going forward.

The seeming slowdown in banking stocks rally during the period is a clear indication of what investors are expecting in this earnings season which will likely come mixed. Investors must therefore play with caution as traded volume on daily and weekly time frame continues to decline.

When the index keeps going higher, it is useful to keep an eye on stocks driving that sector upward.

For now, those are the first tier banking stocks that have supported the market and sectoral indexes in the period under review. The current formation of double tops by the money flow index of the banking index will trigger short-term profit taking and pullbacks that will further depress the market, especially if the banking sector takes a turn for the worse.

Institutional investors are likely to pull funds out of the banking, oil and Consumer Goods stocks, considering the low interest regime, unstable crude oil prices, low earning and purchasing power of Nigerians in the face of rising inflation. During the week also, President Muhammadu Buhari signed the revised 2020 budget of N10.8tr into law.

As we have always noted, in any market situation there are opportunities, especially with the earnings season kicking off in the coming week to change the market momentum and action. You don’t have to be smart before you can 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 but to manage risk diversification across assets class, sectors, region, and currency.

Movement Of NSEASI

The bears sustained their dominance last week, despite the three sessions of up market on mixed trend and a year-to-date negative outlook, resulting in two sessions of down market.

The All Share index opened the week on a negative note, losing 1.27% on selloffs among high cap stocks, before Tuesday’s rebound when it gained 0.30% amidst buying interests in banking stocks triggered by notifications of closed periods filed by directors of Zenith Bank and Guaranty Trust Bank. This was sustained at the midweek when the NSE index climbed 0.75% up, but stayed flat on Thursday as selloffs continued in the mid of position taking in banking stocks, before closing higher on Friday, when it gained 0.12% as high cap stocks recorded value gain.  This brought the week’s aggregate loss to 0.12%, as against the previous week’s 1.99% loss.

Specifically, the composite NSEASI shed 29.76 basis points, after opening at 24,336.12bps, touching an intra-week low of 23,961.14bps, from its high of 24,374.40bps on selloffs and cautious buying.

With the market extending to the decline phrase, in the midst of positive sentiment for banking stocks and fear of mixed earnings and economic data, investors should go for defensive stocks. They should target those with high possibility of posting positive numbers in the face of coronavirus pandemic and has the historical pattern of resisting decline, despite Friday’s reversal, as the market closed below the opening level at 24,306.36ps,

In the same vein, market capitalization dropped by N15.53bn during the week, closing at N12.68tr from the previous weekend’s N12.7tr, representing a 0.12% value loss. In the review period, the share prices of Airtel Africa, Trans-nationwide Express and Fidson Healthcare were adjusted for cash dividends of N11.61, three kobo and 0.15 kobo respectively.

Despite the expiration of the two-month extension by the NSE for submission of Q1 corporate earnings last month, there were three late filers: Austin Laz, Omatex Venture and Livestock Feeds, which released their Q1 quarterly earnings that were mixed, while the numbers from Livestock feeds came above expectation.

The advancers table for the period were dominated by penny and banking stocks despite the fact that decliners were more in the ratio of 33:25, while the momentum behind the week’s performance was relatively strong, as Money Flow Index read 61.66bps, compared to 58.58bps in the previous week, despite the raging bears.

The NSE’s index action has slipped into decline stage on a weekly chart, despite the seeming resistance as revealed by the candlestick formation in the chart above , t he All the momentum indicators on daily and weekly bases are mixed which signals weakness. This is despite the weekly bullish MACD which has crossed the signal line, while sliding down. The index tested  20-Day Moving Average, and is set to breakdown the Fibonacci retracement line of 38.2, after breaking it and retracing up,  just as volume stood at 84%, and money flow index up at 61.66 point.

The Relative Strength Index for the period is looking down, reading 44.62 just as the momentum behind the market’s correction is increasing in the face of buying interests in some stock. Just as selloffs linger on the ground that investors are discounting the happening in the economy and Q2 economic and earnings data, as portfolio repositioning continues at a time of global economic reset and fear of COVID-19 resurgence in the second half, delaying the global economic recovery.

The  trending strength behind the NSE’s index movement on a daily and weekly chart have been weakened with the ADX reading 18.98 points from last week 20.48points, on positive sentiments as revealed by Investdata’s Sentiment Report for the week, showing 84% ‘buy’ volume and sell position of 16% with the transaction volume index at 0.60.

Bearish Sectoral Indices

The sectoral indexes  were bearish except for the NSE Banking which closed 5.85% higher, while NSE Consumer Goods index led decliners after losing 3.96%,  followed by the NSE Industrial Goods, Insurance and Oil/Gas  that closed 2.13% , 0.73% and 0.67% down respectively.

The week’s transactions in terms of volume and value were mixed as volume traded was down by 6.27% with investors trading 901.54m shares from the previous week’s 961.83m units, even as transaction value jumped 56.35% up to N13.45bn, from N9.18bn in the previous week. The week’s volume was boosted by trades in financial services, ICT and consumer goods especially Guaranty Trust Bank, Fidelity Bank, Zenith Bank, MTNN and Flourmills.

The best performing stocks during the period were Redstar Express and PZ Cussons, as they gained 18.52% and 15.38% respectively, closing at N3.52 and N4.50 per unit on positive sentiment and market forces. On the flip side, Custodian Investment and Conoil lost 10.91% and 10% respectively, closing at N4.91 and N18.70 per share on market forces and profit taking respectively.

Market Outlook

We expect the volatility  and mixed  sentiment to continue ahead of expectedly half-year earnings reports decline that are  being factored into the ongoing asset revaluation by fund managers and individual investors after one month of distribution, as selloffs gains momentum.  This correction is, nonetheless, creating opportunities for short-term trading, using the value area called resistance and support level in the midst of earnings reporting season.

We cannot also rule out investors pricing in government inconsistent policies and weak macroeconomic data as June  Inflation reports are expected in the new week to know the magnitude it had further thrown returns on most investment classes into a negative yields, as inflation has risen close to the Central Bank of Nigeria’s benchmark Monetary Policy Rate (MPR) at 12.5%.  Declining industrial productivity that points to recession.

The sectoral rotational wave will help investors to cash in on low cap stocks and sectors that have 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 is high, due to the higher yields and upside potentials, considering the low rates on offer in the money and bond markets. In the meantime, investors should also look out for developments around the implementation of the CBN’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, as seen in the increased trading in them, even as the global markets continue on the recovery path, with the gradual easing of the lockdown.

While discerning investors should prepare to take advantage of stocks revaluation 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 pullback that will support the upside potential, 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.

Meanwhile, the home study packs, videos on strategies and how to invest profitably in this changing market dynamics and recession.  Mastering Earnings Season for Profitable Trading and Investing in any market situation/Cycle 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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