Mixed Session May Linger, As Soaring Oil Price Supports Nigeria’s Fundamentals

Market Update for July 9

It was a mixed and calm trading session on the Nigerian Stock Exchange (NSE) with Thursday’s equity prices closing uneven as revealed by the negative sentiments, halting the two preceding sessions of bull transition on strong selling pressure and above-average volume.

Thursday’s mixed market technicals calls for caution among investors, even as they position in interim dividend paying stocks ahead of their half-year financials. This seeming rebound may be another dead cat bounce as Thursday’s trading closed flat on a negative breadth.

Given that investors have long before now been factoring this expected disappointing half-year results into their pricing metrics, negative reaction when the numbers finally hit the market, may not be as severe. Investors and traders with understanding of how to profit from an earnings reporting season should take advantage of this momentum and actions to make more money with less effort due to the unusually high premiums and big price action this new season should provide.

After months off the airspace, airlines and allied service providers are currently trying to resume operations and restore confidence in safety of air travel, even as they hope to fill their cabins this summer. They are enjoying intervention from government by way of bailouts to reduce the effect of coronavirus outbreak on the industry. But despite the harsh operating environment, there must be deliberate efforts by stakeholders to balance the need for safety with sustainable financing. In the face of this, we see airline operators hiking their fairs, thereby passing the cost of the new safety measures to customer.

Thursday’s trading started in the upside, which was sustained till late afternoon as buying interests in banking stocks and selloffs in consumer goods pushed the benchmark NSE All-Share Index to an intra-day low of 24,276.56 basis points, from its high of 24,336.45bps. Thereafter, it closed marginally below its opening at 24,276.56bps.

Market technicals were weak with lower volume traded than the previous session in the midst of negative sentiments and high selling pressure as revealed by Investdata’s Daily Sentiment Report showing a ‘sell’ position of 100%. Total daily transaction volume index stood at 0.85, just as energy behind the day’s performance stayed weak, with Money Flow Index reading 36.77points, up from the previous 29.21ps, indicating that funds entered some stocks despite the fact that the market closed flat.

Index and Market Caps

The composite NSEASI declined by a marginal 1.51 basis points, closing at 24,276.56bps, after opening at 24,278.07bps, representing a 0.01% drop, while market capitalization fell N79m, closing at N12.66 trillion from an openingvalue of N12.66 trillion  representing a 0.01% value loss.

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The day’s marginal decline resulted from selloffs in Access Bank, FBNH, Dangote Sugar, Fidelity Bank, Conoil, Vitafoam, International Brewery and Arbico, which impacted mildly on the NSE’s benchmark index. This increased Year-To-Date loss to 9.56%, just as market capitalization YTD loss stood at N293.50bn, representing a 2.25% down from the year’s opening level.

Mixed Sector indices 

Performance across the sectors were mixed as  the NSE Consumer Goods and Oil/Gas indexes closed 0.64% and 0.44% lower respectively, while the NSE  Insurance, Banking and Industrial goods were up by 0.64%, 0.60% and 0.02% respectively.

Market breadth was negative as decliners outweighed advancers in the ratio of 15:10, while transactions in volume and value terms were down by 19.76% and 49.05% respectively as investors exchanged 192.08m shares worth N2.47bn, from the previous day’s 232.61m units valued at N4.7bn. Volume was boosted by trades in Fidelity Bank, Guaranty Trust Bank, Zenith Bank, Access Bank and UBA.

Law Union Insurance and Honeywell flourmill were the best performing stock, having gained 7.08% and 6.59% respectively, closing at N1.07 and N0.97 per share respectively on low price attraction and market forces. On the flip side, Conoil and Arbico lost 10% and 9.52%, closing at N18.90 and N1.71per share respectively on selloffs.

Market Outlook

Being the last trading day of the week, we expect the mixed performance to continue as news of soaring oil prices supports Nigeria’s economic fundamentals, while inconsistent government policies continue to dampen investor confidence ahead of the expectedly disappointing half-year corporate earnings reports. 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 29.21, 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, ahead of the Q2 earnings reports season, 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 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. 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

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