Mixed Trend May Linger On NGSE, Amidst Policy Inconsistencies

Market Update for July 2

Trading on the Nigerian Stock Exchange (NSE) extended its distribution phase on Thursday, wiping away gains of the previous session while confirming a bearish breakdown of the composite All-Share index which closed lower on a less than average traded volume.

Wild volatility is likely to continue as the market attempts to establish a new trend with the index set to breakdown the 50 Day Moving Average.

The selloffs and profit booking witnessed during the session were across all the sectors and ahead of the Q2 earnings reporting season, as portfolio repositioning and balancing continue at a time the government and its economic managers have demonstrated a lack of coordination in policy articulation, formulation, and direction.

The suspended hike in electricity tariff and the recent increase in the pump price of premium motor spirit (petrol) to N143.80 per liter, are clear indications that monetary and fiscal authorities are still not complementing each other to mitigate the effects of the Coronavirus (COVID-19) pandemic on the economy. It is said that this same government that recently announced an N2.3tr stimulus package to ease the pains of the pandemic on the people, and the continued rise in inflationary pressure is raising fuel price, a situation that is likely to result in an increase in the prices of goods and services.

We have before now, continually advised investors to take short-term risks in the stock market through our daily research and analysis throughout the month of June because we have seen different economic data pointing to various directions, reflecting the impact of the COVID-19 pandemic on the economy.

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 was sustained throughout the session, despite oscillating on a sell down that pushed the benchmark index to an intra-day low of 24,357.75 basis points, from a high of 24,612.25bps, before closing the session lower at 24,374.40bps on a negative breadth.

The daily market technicals were negative and weak as volume traded was lower than the previous session’s, and breadth favored the bears on selling pressure as revealed by Investdata’s Daily Sentiment Report, showing a ‘sell’ position of 93% and buy a volume of 7%. Total daily transaction volume index stood at 0.69, just as the impetus behind the day’s performance stayed weak, while Money Flow Index read 25.13 points, up from the previous 23.63ps, indicating that funds left some stocks and the market.

Index and Market Caps

At the end of Thursday’s trading, NSEASI shed 220.65 basis points, closing at 24,374.40bps from the previous day’s 24,595.05bps, representing a 0.90% decline, just as market capitalization felled by N115.07bn, closing at N12.72tr from an opening value of N12.83tr, also representing a 0-90% value drop.

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Thursday’s downturn was driven by selloffs in Guaranty Trust Bank, Zenith Bank, Lafarge Africa, Access Bank, Cadbury, FBNH, Flourmills, UBN, and Unilever, a situation that impacted negatively on the NSE’s benchmark index, increasing its Year-To-Date loss to 9.19%. Market capitalization YTD gain dropped to a mere N13.08bn, representing a 0.08% up from the year’s opening level.

Bearish Sector indices 

Performance indexes across the sectors were down, led by the NSE Banking index’s 4.58% slide, followed by the Insurance index which shed 1.02%, while the NSE Consumer Goods Oil/Gas and Industrial Goods indexes closed 0.93%, 0.30% and 0.02% down respectively.

Market breadth was negative as decliners outnumbered advancers in the ratio of 26:7, while activity in volume and value terms were mixed as volume dropped by 9.03% to 180.12m from the previous day’s 198.01m, with value appreciating by 77.88% to N1.85bn, from the previous day’s N1.04bn. The day’s volume was boosted by trades in UBA, FBNH, Guaranty Trust Bank, Transcorp and UBA.

Neimeth Pharm and Jaiz Bank were the best-performing stocks of the day, after gaining 9.40% and 7.27%, and closing at N1.63 and N0.59 per share respectively on positive sentiment and market forces. On the flip side, Capital Hotel and GSK lost 10% each, closing at N2.43 and N4.95per share respectively on selloffs.

Market Outlook

We expect the continuation of a mixed trend, as the market reacts to the declining Treasury Bills’ yield which is down to 3.38%, with the Naira deprecating to an all-time low against the US$ at the black market, and investors react to government’s reversal of the pump price of fuel. There are also the wobbling macroeconomic data and expected disappointing Q2 corporate earnings to be factored into the mix. This is likely to support the bearish wave and further pullbacks that would create new entering opportunities, as the Money Flow Index continues its up and down movement. It is also evident that smart money is exiting the market, despite flowing from one sector to the other, seeking value in terms of low prices with high upside potentials.

These are just as economic recovery is expected to come fast on the back of the stimulus packages by government and the Central Bank of Nigeria (CBN), ahead of the Q2 earnings reports, 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, investors and traders are advised to trade low priced stocks with serious caution and in the process 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.

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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