NGSE Index Slip, As Investors Position In Dividend Paying Bank Stocks

Market Update for September 7

Monday’s trading on the Nigerian Stock Exchange (NSE) was volatile and mixed, closing negative as profit taking hit banking and consumer goods stocks, following which the benchmark All-Share index closed marginally lower with a very high traded volume on a mixed sectorial performance.

The recent chart pattern formation of the NSEASI since it entered the short term overbought zone and broke out the double top with huge volume of trades, suggests that the party is over. It could also be sign that end of the rally is here, allowing for a slight price correction or pullback now that the much anticipated half-year results of the dividend paying banks have been released to the market with markdown dates coming slated for next week.

We however note that Access Bank’s interim dividend yield at 3.67% remains better than the 3.34% for the 364-day Treasury Bills as of the close of Monday’s trading, less than 10 days of releasing its audited half-year results, despite the seeming market correction ahead.

Technically, Monday’s market slowed down after six sessions of a back-to-back rally on a high traded volume, a situation that call for careful trading at this stage of the rally to avoid a bull trap. This is because technical tools have signaled short-term overbought region, but are yet to confirm a deeper price correction or pullbacks at this time. Is this rally the BULL TRAP we have been warning about? We wait to see, as the week started on a pullback, whether equity prices will confirm any new trend or direction. 

Meanwhile, trading opened slightly in the green in the early hours and was maintained till midday, before oscillating in the afternoon on profit booking and position taking in medium and high cap stocks, which pushed the NSE index to an intraday low of 25,573.24bps, from its high of 25,631.16bps. Thereafter, close the session lower at 25,582.23bps.

Monday’s market technicals were weak and mixed, as traded volume was lower than the previous session in the midst of breadth favoring the bulls and high selling pressure, as revealed by Investdata’s Sentiment Report showing 84% ‘sell’ volume and buy position of 16%. Total transaction volume index stood at 1.17points, just as momentum behind the day’s performance remained relatively strong, with Money Flow Index reading 87.49points, from the previous day’s 87.58points, an indication that the entry of funds into the market is declining, despite the down market.

Index and Market Caps

At the close of trading, the NSEASI dropped 23.41bps, closing at 25,582.23bps, having opened at 25,605.64bps, representing 0.09% drop, just as, market capitalization fell by N12.22bn to N13.35tr, after opening at N13.36tr, also representing a 0.09% value loss.

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Monday’s downturn resulted from price depreciation and profit taking in Guaranty Trust Bank, Zenith Bank, UBA, FBNH, Dangote Sugar, Guinness and Honeywell Flour, which impacted mildly on the index, increasing Year-To-Date loss to 4.69%. Market capitalization YTD gain stood at N387.5bn, representing 2.99% above the year’s opening value.

Mixed Sector Indices

The sectorial performance indexes were largely bullish, except for the NSE Banking and Consumer goods that closed 0.70% and 0.36% lower respectively, while the NSE Insurance index led the advancers, gaining 0.69%, followed by Oil/Gas which notched 0.19%, and NSE Industrial Goods, 0.03%.

Market breadth was slightly positive as advancers outnumbered decliners in the ratio of 16:15, market transaction in term of volume and value were down by 39.24% and 47.23% respectively, as investors exchanged 254.97m shares worth N2bn, as against the previous day’s 419.66m units valued at N3.79bn. This was driven by trades in UBA, Zenith Bank, Access Bank, Custodian Investment and FBNH.

Eterna and NEM Insurance were the best performing stocks of the day, gaining 9.10% and 8.7% respectively to close at N2.27 and N2.25 per share on their low price attraction and market forces. On the flip side, Honeywell Flour and Chams lost 6.3% and 4.5% respectively, closing at N0.90 and N0.21 respectively on profit taking and market forces.

Market Outlook

We expect a mixed trend on profit taking ahead of qualification and markdown dates of dividend paying banks as investors reposition their portfolios, looking forward to market correction ahead of the Q3 earnings season. Recall that the banks have kept the market above its 50-day moving average on a daily time frame.

The mixed intraday movement is likely to persist as the month of September progresses in the midst ofprofit booking 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 2020 as government and its economic managers are going front and back with mismatch polices and action.

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 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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 Economic Recovery Scenarios, What’s the Fate of Equities and Other Assets Classes (MrOluwasegunAkinwale, Lead Analyst, Nova Merchant Bank)

The Paradox of Declining Interest Rate and Rising Inflation: Confusion or New Realities for Investors (Mr. AbiolaRasaq, CSCS)

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Ambrose Omordion

CRO|Investdata Consulting Ltd

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