Volatility Still As Investors Bet On Other H1 Earnings, Interim Div Stocks

Market Update for the Week Ended July 24, And Outlook for July 27-31

It was a volatile and bearish week of mixed sentiments on the Nigerian Stock Exchange (NSE), with the benchmark All-Share Index closing higher on the strength of renewed buying interests in highly capitalized stocks among investors. This also followed the plethora of mixed corporate earnings reports made available to the market during the period, ahead of month-end window dressing and in the midst of an earnings reporting season with different momentums and reactions.

Despite the seeming confusion among investors and the operating environment in a week when the Central Bank of Nigeria (CBN) Monetary Policy Committee (MPC) retained all monetary policy rates unchanged. The MPR was left at 12.5%; Cash Reserve Ratio, 27.5%; and Liquidity Ratio, 30%; in the face of negative macroeconomic indices, especially inflation that remained on the rise buoyed by the spike in food prices across the country on the back od the continued closure of the country’s land borders, the growing insecurity, rising cost of transportation and worsening infrastructure decay. Others are confusion among the policy makers, considering the unprecedented effect of coronavirus outbreak on the economy which further exposed the weakness and even shallowness of the nation’s economy. 

The economic realities and changing dynamics in the investment world due to low interest rates in the global and domestic environment, with central banks trying to stimulate activities again and reduce the effect of COVID 19 by injecting various stimulus packages into the system, especially critical sectors to avoid economic collapse. This has put pressure on fund managers, professionals and investors that had depended on Treasury Bills in the last 15 years for double-digit returns.

We note that investors are becoming mindful of the rising inflation and the need to protect their capital and returns by hedging against inflation, following which we expect funds to flow to equity assets, considering the different investment window yields and time frame.  The fixed income market comprises bond, treasure bill and commercial papers, with the five-year FGN Bonds having 4.9% yield;, Euro Bond, 7.03%; and TB 364-day at 2.96% for a year. The 225-day, 203-day and 169-day Commercial Papers of MTNN, Dangote Cement and Nigerian Breweries have yields of 4.92%, 4.77% and 4.86% respectively.

Meanwhile, the short term interim dividend paying stocks have more attractive less-than 90-day yield as show in the table below:

Interim Dividend Of Selected Companies
Securities Last Int.Div Mtk Value BVPS Yields
Access Bank 0.25 6.20                17.30 4.03
Seplat          15.00 386.00        921.35 3.88
Stanbic IBTC 1.00 29.00        30.34 3.44
UBA                  0.20 6.15                17.00 3.25
Airtel Africa 9.20 348.00 2.64
MTNN          2.95 118.00          9.61 2.50
Nestle          25.00 1175.00         71.29 2.12
Custodian Inv 0.10 4.80                  7.55 2.08
Zenith Bank 0.30        15.75         30.00 1.90
AXA Mansard 0.03         1.58                  2.18 1.89
NB                  0.50 30.00          20.34 1.66
Guaranty Trust 0.30         21.50          23.24 1.39
The global stock markets recorded mixed performance as equity prices decline on US and China cold war resurfaced in the midst of fear of a second coronavirus wave, recovering economic data, news of vaccine discovery, earnings season at its peak and oscillating crude oil prices. As tech funds and impressive earnings performance of tech companies continued to drive sector price performance.

Movement Of NSEASI

The key performance NSEASI opened the week bearish, with 0.07% loss, and was sustained on Tuesday when it lost a bigger 0.39% decline, before closing flat at midweek, due to buying interests in healthcare stocks. It was a strong reversal on Thursday when demand for Dangote Cement and MTN pushed the index 1.4%, before slowing down on Friday at 0.34%. This brought the week’s total gain to 0.58%, more than enough to wipe off the previous week’s entire 0.08% loss.

Consequently, the NSEASI gained 140.07 basis points, after opening at 24,287.66bps; touching an intra-week high of 24,512.27bps during the period, from its low of 24,114.59bps on mixed sentiments, while rekindling buying interests as revealed by the week’s traded volume.  The index closed above its opening level at 24,427.73ps, just as market capitalization was up N73.07bn during the week, closing at N12.74tr from the previous weekend’s N12.67tr, also representing 0.58% value gain.

The share prices of Presco and Linkage Assurance were adjusted for cash dividends of N2.00 and bonus of one share for every four held respectively, as recommended by their directors.

The advancers’ table was dominated by low priced stocks, as gainers were more in the ratio of 28:25, while the momentum behind the week’s performance was relatively strong, as Money Flow Index read 68.33bps   from 68.38ps in the previous week, despite the mixed sentiments and improved buying interest.

The NSE’s benchmark index on a daily and weekly time frame resisted decline to trade above the 20-Day Moving Average and 38.2% line of Fibonacci retracement on above average traded volume that indicates strength. The candlestick formation on both time frame signals pattern reversal, that support uptrend as earnings released so far have not been too bad as envisaged, just that more is being expected going forward.

MACD on weekly and daily chart remain bullish as at Friday, since it crossed the signal line two days ago on a daily time frame to support uptrend and changing momentum in the marketon increasing numbers of earnings reports that are above expectation. The buy volume for the period stood at 79%, and money flow index flat at 68.33 points.

The Relative Strength Index for the period is looking up, reading 45.68, just as the momentum behind the market attempting rebound was flat in the midst of improving buying interests in some stock. This was despite mixed sentiments and earnings reports that are yet to give market direction.

The energy  behind the NSE’s index movement on a daily and weekly chart stayed mixed with the ADX reading 17.78 points from last week’s 18.48 points, on positive sentiments as revealed by Investdata’s Sentiment Report for the week, showing 79% ‘buy’ position  and sell volume of 21% with the transaction volume index at 0.89.

Bearish Sectoral Indices

Performance index across the sectors were down,  except for the NSE Industrial Goods which closed marginally 0.60% higher, while the NSE Oil/Gas  index led decliners after losing 4.67%, followed by the NSE Insurance , Banking  and Consumer goods   that closed  0.80% , 0.62% and 0.38% down respectively.

Transactions during the week in terms of volume and value were up by 32.35% and 93.95% respectively as investors exchanged 1.35bn shares worth N14.54bn from the previous week’s 1.02bn units valued at N7.44bn. The week’s volume was boosted by trades in financial services, conglomerates and consumer goods stocks, especially FBN Holdings, UACN, UBA, Sterling Bank and Flourmills.

The best performing stocks for the week were Fidson Healthcare and Unity Bank which gained 18.11% and 15.56% respectively, closing at N3.13 and N0.52 per unit on market sentiment and forces. On the flip side, Prestige Assurance and International Brewery lost 14.81% and 10.53% respectively, closing at N0.46 and N3.40per share on profit taking and selloffs respectively.

Market Outlook

We expect volatility to continue as more  half-year earnings reporting season hit the market, ahead of reports from interim dividend paying stocks in August,  amidst reaction to good and bad earnings, month-end window dressing by market players and fund managers. The earnings season provides buying opportunities for short-term trading, using the value area called resistance and support level in your trading decision.

We cannot also rule out investors pricing in government’s inconsistent policies and weak macroeconomic data as the June Inflation report helps investors determine by how much it has thrown returns in most investment classes into negative yields. Already, inflation has risen above the Central Bank of Nigeria’s benchmark Monetary Policy Rate (MPR) at 12.5%, even as the declining industrial productivity points to the reality of a recession.

The sectoral rotational wave will help investors cash in on low cap stocks and sectors that have suffered huge losses before now. Already investors are looking the way of healthcare, airline service 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 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..

Ambrose Omordion

CRO|Investdata Consulting Ltd
info@investdataonline.com
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