NGSE Rebounds, Despite Naira Devaluation Ahead Of Expected Weak Q2 Earnings

Market Update for July 8

Equity prices closed higher on the Nigerian Stock Exchange (NSE) at the midweek, extending the previous session’s positive stance on interim dividend expectation among the first tier banking stocks especially, coupled with the positive news of crude oil price rebound at the international market. This is expected to support the nation’s economic fundamentals in the short-run, at a time the African Development Bank (AfDB) published its African Economic Outlook projecting that the Nigerian economic could contract by as much as 7.2%, depending on the duration and gravity of the Coronavirus pandemic.

Wednesday’s rebound was also despite the official devaluation of the Naira to N380/US$1 in the midst of inconsistent government policies that are capable of rubbishing intervention efforts by the fiscal and monetary authorities to mitigate the effect of coronavirus outbreak and delay the expected recovery.

The seeming rebound of the composite index is coming ahead of the expectedly weak quarterly corporate scorecards as earnings season kicks off next week.

Investors are cautiously targeting fundamentally sound stocks with juicy underlying value, because this bargain hunting at this period may just be another dead cat bounce that may trap many players.

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.

As we have alwaysnoted 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.

Meanwhile, midweek’s trading opened green and closed higher, despite the wild volatility,   renewed interest in financial  services and industrial goods stocks, which pushed the NSE index to an intra-day high  of 24,374.40 basis points, from its low  of 24,026.05bps. Thereafter, the NSEASI finished the session higher at 24,278.07bps on a high traded volume.

Wednesday’s market technicals were positive and strong as volume traded was higher than the previous session’s, with breadth favoring the bulls and positive sentiment as revealed by Investdata’s Daily Sentiment Report, showing a ‘buy’ position of 72% and sell volume of 28%. Total daily transaction volume index stood at 0.98, just as momentum behind the day’s performance stayed weak, with Money Flow Index reading 29.21points, up from the previous 27.57ps, indicating that funds entered some stocks.

Index and Market Caps

At the end of midweek’s trading, the All Share index gained 179.99 basis points, closing at 24,278.07bps, after opening at 24,097.48bps, representing a 0.75% growth, while market capitalization rose by N94.21bn, closing at N12.66tr from an opening value of N12.57tr, representing a 0.75% value gain in investors’ portfolios.

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The upturn for the session was driven by demand for Guaranty Trust Bank, Zenith Bank, Access Bank, UBA, FBNH, Julius Berger, Okomu Oil and Lafarge Africa, impacting positively on the NSE’s benchmark index. This reduced its Year-To-Date loss to 9.55%, just as market capitalization YTD loss stood at N293.50bn, representing a 2.24% down from the year’s opening level.

Mixed Sector indices 

The sectorial performance indexes were largely bullish except for the NSE Consumer Goods and Oil/Gas indexes that closed lower by 0.21% and 0.18% respectively, while the NSE Banking led the advancers by 3.41%. It was followed by the Insurance and Industrial Goods indexes that shed 1.10% and 0.12% respectively.

Market breadth turned positive as advancers outnumbered decliners in the ratio of 25:8, while activity in volume and value terms jumped by 49.56% and 80.77% respectively as investors exchanged 232.61m shares worth N4.7bn from the previous day’s 155.53m units valued at N2.6bn. Volume was boosted by trades in Fidelity Bank, MTNN, Lafarge Africa, Guaranty Trust Bank and Zenith Bank.

Lafarge Africa and Julius Berger were the best performing stock, as they gained 10% and 9.90% respectively, closing at N11.00 and N17.20 per share respectively on low price attraction and market forces. On the flip side, Berger Paints and Caverton lost 9.63% and 4.40%, closing at N6.10 and N1.74 per share respectively on selloffs.

Market Outlook

We expect the mixed performance to continue as new 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 persisted, 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 upsidepotentials.

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 withserious caution to avoid being trapped. However, the market’s high dividend yield continues to attract buying interests, as fewaudited and unaudited corporate earnings will hit the market, going forward. This is despite the likely continuation of selloffs. Investors are buying to increasetheir positions in undervalued stocks ahead of Q2 numbers. It is also againstthe 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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