Selloffs Ahead, Amidst Portfolio Rebalancing, Weak Q2 Data, Price Correction

Market Update For June 29

The Nigerian Stock Exchange benchmark All-Share index closed higher on Monday, strengthened by positive sentiments for Consumer Goods ranging from agribusiness to healthcare stocks which appreciated in value. The growth was propelled by the window dressing amidst the Q2 end window dressing by fund managers, even as market players balanced their portfolios in preparation for trading during the second half of the year.

The oscillating crude oil prices at the international market is due to the rising incidences of the novel coronavirus pandemic across the world, resulting in mixed sentiment and outlook that has kept the market lower for almost the entire session. There was however demand high cap stocks at the last minutes which impacted the day’s trading positively, extending the previous session’s bull-run.

The unfolding events and news around the market, economy, and politics suggest further challenges ahead that may weigh down the stock market in the new week and month, including the wobbling economic data, quarter-end portfolio rebalancing by institutional investors, and fund managers. Others include low traded volumes, an indication of cautious trading, even as market technicals used by some players (as decision-making tools), and finally, the Central Bank of Nigeria (CBN) intervention to mitigate the impact of COVID-19 on households, small businesses, and others.

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.

Meanwhile, Monday’s trading opened on the downside and it was sustained till late afternoon before rebounding on buying interests in Nestle, Okomu Oil, Dangote Sugar, UACN, Fidson, and others. This pushed the composite index to an intra-day high of 24,858.82 basis points, from its low of 24,740.06bps, and thereafter closed the session higher at 24,858.82bps on a negative breadth.

Monday’s market technicals were positive and mixed with higher volume traded than the previous session’s, just as breadth favored the bears on a strong buying pressure as revealed by Investdata’s Daily Sentiment Report, showing a ‘buy volume of 100%. Total daily transaction volume index stood at 0.60, just as momentum behind the day’s performance stayed weak, with Money Flow Index reading 25.78points, down from the previous 27.71ps, indicating that funds exited some stocks despite the upmarket.

Index and Market Caps

At the end of Monday’s trading, the NSEASI gained 29.86 basis points, closing at 24,858.82bps from 24,829.02bps, representing a 0.12% rise, while market capitalization rose by N15.58bn, closing at N12.97tr from an opening value of N12.95tr, or 0.12%.

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The session’s upturn was driven by demand for high, medium and low cap stocks which impacted mildly on the NSE’s benchmark index, cutting its Year-To-Date loss to 7.39%, while market capitalization YTD gain stood at N13.56bn, representing a 0.09% up from the year’s opening level.

Mixed Sector indices 

The performance indexes across sectors were mixed as the NSE Banking, Oil/Gas, and Industrial goods indexes lost 1.24%, 0.62%, and 0.14% respectively, while the NSE Consumer Goods and Insurance indexes closed 1.86% and 0.23% higher respectively. Market breadth was negative as decliners outnumbered advancers in the ratio of 29:18, while activity in volume and value terms were mixed, while volume traded was up by 24.78%  to 158.72m shares from the previous day’s 127.2m units with value dropping by 23.73% to N1.64bn, compared to Friday’s N2.15bn. This volume was boosted by trades in Guaranty Trust Bank, FBNH, Zenith Bank, Lasaco Assurance, and UBA.

The day’s best-performing stocks were Okomu Oil and Cutix, which gained 10% each closing at N70.40 and N1.76 per share respectively on market sentiment and 0.125 kobo dividend, On the flip side, Unilever and Ardova lost 10%, closing at N15.30 and N11.75per share respectively on selloffs

Market Outlook

We expected the selloffs to continue amidst portfolio rebalancing and expectation of weak Q2 numbers that will support the bearish wave on price correction, just as the Money Flow Index turned southward. This has revealed that smart money is exiting the market, despite investors positioning in some sectors and low priced stocks ahead of the earnings season. This is just as economic recovery is expected to come fast on government and the Central Bank of Nigeria (CBN) interventions, implying yet that opportunities are still available as sectorial 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, 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. Also, investors and traders are positioning amidst the changing sentiments in the hope of improved liquidity and positive economic indices that may reverse the current trend. We see investors focusing on the upcoming full-year earnings season, targeting companies with strong potentials to grow their dividend on the strength of their earnings capacity.

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 on how to invest or trade profitably in changing market dynamics and recession, Mastering earnings season for profitable investment 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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