Mixed Session May Subsist On Window Dressing, Portfolio Realignments

Market Update for August 24

Equity prices on the Nigerian Stock Exchange (NSE) on Monday closed slightly higher, extending the seemingly bullish trend for the fifth consecutive session, even as it remained weak and mixed, with the composite All-Share index forming a double top that supports profit-taking and pullback, depending on market forces.

Although, the recent rally has not reflected on many stocks, the few that recorded gains have equally formed the same double and multiple tops chart pattern with the NSEASI, suggesting a breakout or decline is in the offing. 

The earnings reporting season which has supported the market in its bull transition is gradually coming to end with the expectation of half-year scorecards from the first-tier banks any moment from now. These banks would likely declare interim dividends, and this possibility has been factored into the prices before now, meaning that the probability of the stocks rallying when the numbers finally hit the market is slim. Reason: Traders will be taking profit, a situation that may lead to market decline, hence the need for extreme care in our taking positions, especially short-term players.  

Technically, the market is currently at a short term overbought region as technical indicators are mixed on a daily and weekly time frame, suggesting that a correction is underway with double top chart patterns on both time frames and flat breadth. This is because it trades above the 20 and 50-Day Moving Averages on a daily chart, while Money Flow Index read 73.84 points, an indication that funds are entering the market.

Nonetheless, there was a sluggish uptrend, low liquidity and 2020Q2 GDP contraction by 6.1% as released during Monday’s trading session by Nigeria’s National Bureau of Statistics (NBS). 

Such huge economic contraction, the first since the last recession in 2016 was a clear reflection of the impact of the Coronavirus outbreak leading to the nationwide economic lockdown, which was a terrible combo with the subsisting low crude oil prices at the time. Given the seeming uptrend in oil prices at the moment, expected to result in increased foreign exchange earnings by the government and other bouquet of interventions, effects of this negative position may be mitigated to a great extent in Q3. The looming recession may not be as intense or even crystallize, despite the prevailing negative macroeconomic indices.

Meanwhile, Monday’s trading session started slightly on the downside in the morning and rebounded between mid-morning and midday, before oscillating for the rest of the session on profit taking and positioning in manufacturing stocks. Within the period, the benchmark index rallied to intraday high of 25,229.12basis points, from its low of 25,136.49bps, after which the market closed marginally higher at 25, 229.12bps on a very high traded volume. 

Market technicals on Monday were positive but mixed, even as volume traded was higher than that of previous session on a flat breadth, and high buying pressure as revealed by Investdata’s Sentiment Report showing 100% ‘buy’ position. Total transaction volume index stood at 1.19points, just as momentum behind the day’s performance remained strong, with Money Flow Index reading 73.84points, from the previous day’s 73.04points, an indication that funds entered the market.

Index and Market Caps

At the end of the day’s trading, the NSEASI gained 7.25bps, over the 25,221.87bps it opened, representing a 0.03% up, just as market capitalization inched N3.78bn up at N13.16tr, also representing a 0.03% value gain.

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Monday’s session recorded an upturn due to value appreciation by Guaranty Trust Bank, Zenith Bank, Unilever, Guinness Nigeria, PZ Cussons, International Breweries and University Press.  This impacted mildly on the NSE, as Year-To-Date loss reduced to 6.01%, while market capitalization YTD gain stood at N203bn, or 1.57% above the year’s opening value.

Mixed Sector Indices

The sectorial performance indexes were largely bullish, except for the NSE Industrial Goods and Banking that closed 0.10% and 0.01% lower respectively, while the NSE Insurance index led the advancers table after gaining 0.82%, followed by NSE Consumer goods with 0.70% higher, while NSE Oil/Gas was flat. 

Market breadth was at par, with the number of advancers equal to decliners at 15:15, while activities in terms of volume and value were up by 58.4% and 34.6% with investors trading 251.19m shares worth N2.36bn, from the previous day’s 158.62m units valued at N1.75bn. Volume was boosted by trades inTranscorp, Zenith Bank, Guaranty Trust Bank, FBNH and Presco.

University Press and Unity Bank were the best performing stocks, gaining 9.68% and 9.62% respectively to close at N1.36 and N0.57per share on full-year earnings expectation and market forces respectively. On the flip side, Transcorp and Royal Exchange Assurance lost 8.20% and 7.69% respectively, closing at N0.56 and N0.24 respectively on profit taking and market forces.

Market Outlook

We expect the current trend to continue on profit taking and buying interests ahead of the interim dividends from Stanbic IBTC, GTB, Zenith Bank, Access Bank and UBA that have kept the market above the 50-day moving average on a daily time frame. The mixed intraday movement is likely to persist as the month of August gradually winds down in the midst of window dressing, profit booking and investors repositioning their portfolios ahead of Q3 numbers. This is also against the backdrop of the fact that the capital wave in the financial market may persist in the midst of relatively low-interest rates in the money market, high inflation, negative Q2 GDP of 6.1% and unstable economic outlook for 2020 as government and its economic managers are going front and back with mismatch polices and action.

Also, investors and traders are positioning in anticipation of interim dividend paying companies earnings reports, amidst the changing sentiments in the hope of improved liquidity and positive economic indices which may reverse the current trend.

We see investors focusing on portfolio adjustment and rebalancing by  targeting companies with strong potential to grow their dividend on the strength of their earnings capacity.

Again, the current undervalue state of the market offers investors 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 for the rest of the year.

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Ambrose Omordionm

CRO|Investdata Consulting Ltd

info@investdataonline.com

info@investdata.com.ng

amberose.o@investdataonline.com

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Tel: 08028164085, 08032055467

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