Intraday Volatility Ahead, As Investors Position Amidst Expected Liquidity Inflow

Market Update for September 28

Blue chip stocks rebounded on the Nigerian Stock Exchange (NSE) Monday, with the benchmark index closing higher on positive sentiment and a high traded volume, sustaining its uptrend for the seventh consecutive session. Investors, especially smart money are positioning in value stocks with history of consistent dividend payment ahead of Q3 earnings reporting season, in reaction to the latest rate cut by the Central Bank of Nigeria (CBN).

The market had extended its wave three at the end Monday’s trading, gliding above the 26,500 points mark, after testing 26,512.05 basis points on a strong buying interest, with money flow index reading 74.74 points on the daily chart as the quarter is set to close positive, and reverse the NSE’s year to date loss position to gain.

In our opinion, the current upside drive is a function of quarterly window dressing and reactions to the negative real rate of returns in other investment windows, especially money market, fixed income instrument and bonds. As observed in recent days, fixed income market activities are dwindling on daily basis, with funds searching for better returns and preservation of capital.

Although this is the situation at the moment, we urged that investors be mindful of revaluation that may take place if the third quarter numbers come below expectation. To protect your capital, target companies with strong earnings power as discussed over the weekend at the InvestData Investors Summit. You may wish to request for a copy of the video. ‘

Despite the current disconnection between the stock market rally and economic realities, some companies continue to record outstanding performance, enough to drive their share prices and the V shape market recovery. The third quarter earnings reporting season will commence any moment from next week, as such the early filers will start hitting the market with their actual scorecards.

Do recall that the normal practice is to use third quarter earnings as a fore-shadow of the full year numbers. In other words, positioning ahead of the release is an intelligent investment decision. The sectorial rotation will continue as the numbers are made available to the market.

Meanwhile, Monday’s trading opened on the upside and was sustained for the rest of the session on a positive buying sentiment in high cap stocks that pushed the key performance index to an intraday high of 26,512.05 basis points, from its low of 26,319.34bps, and thereafter closed above its opening figure at 26.507.34ps on a positive breadth.

Market technicals were positive and strong with volume traded slightly higher than the previous session with breadth favouring the bulls on a strong  buying sentiment, as revealed by Investdata’s Sentiment Report showing 98% ‘buy’ position and 2% sell volume. Total transaction volume index stood at 1.37 points, just as the momentum behind the day’s performance remained strong, with Money Flow Index reading 74.74 points, from the previous day’s 67.25 points, an indication that funds are entering the market.

Index and Market Caps

At the close ofMonday’s trading, the All-Share index gained 188.50bps to close at 26,507.34bps, after opening at 26, 319.34bps, representing 0.72% growth, just as market capitalization rose by N98.51bn to N13.85tr, after opening at N13.78tr, also representing 0.72% appreciation in value.

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The day’s upturn followed positioning in MTNN, Total Nigeria, Okomu Oil, BUA Cement, Lafarge Africa, Floumills, Oando, Aiico, Access Bank and CHI Plc. This impacted positively on the index, reducing Year-To-Date loss to 1.25%, while market capitalization YTD gain firmed up at N895.01 billion, representing 6.91% above the year’s opening value.

BullishSector Indices

Performance indexes across sectors were bullishwith NSEInsurance topping with 1.82%, followed by NSE Oil/Gas by 1.35%, as well as Industrial, Consumer goods and Banking that closed higher by 0.53%, 0.53% and 0.26% respectively.

Market breadth was positive with advancers outnumbering decliners in the ratio of 22:7, while volume and value were mixed as shown by the transaction volume that inched up marginally by 0.32% to 336.83m shares from previous 335.75m units, while the value slipped by 5.84% to N4.03bn from N4.28bn. The day’s volume was driven by trades in Zenith Bank, Sterling Bank, UBA, FCMB and Guaranty Trust Bank.

The best performing stocks of the session were Total Nigeria and Champion Brewery which gained 10% and 9.9% respectively, closing at N88.00 and N0.89 per share on low price attraction and market forces. On the flip side, UACN Property and University Press lost 10% and 8.5% respectively, closing at N0.90 and N1.33 respectively on profit taking.

Market Outlook

We expect profit taking in the midst of continued positioning ahead of the quarter-end window dressing and corporate earnings season, despite the negative macroeconomic indices. This is given the further crash in money market rates, while inflation is at 13.22%, worsening the negative returns on many investment windows.

The mixed intraday movement is likely to persist as the month of September progresses in the midst of profit booking, as well as the mismatch of economic policies and negative macroeconomic indices. 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 the rest of 2020 as government and its economic managers are going front and back with mismatch polices and implementation.

Also, investors and traders are positioning 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 potentials to grow their Q3 earnings and dividend on the strength of their earnings capacity as the year last quarter is at the corner.

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 Omordion

CRO|Investdata Consulting Ltd

info@investdataonline.com

info@investdata.com.ng

ambrose.o@investdataonline.com

ambroseconsultants@yahoo.com

Tel: 08028164085, 08032055467

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