NGSE Volatility May Linger, As Investors Await More Q3 Earnings Reports

Market Update for October 22

It was a slightly mixed but volatile session on Thursday on the Nigerian Stock Exchange (NSE) as prices of medium and high cap stocks rebounded on seeming improved buying interest that reflected the day’s positive market breadth.

The key performance index closed higher on a low traded volume and buying pressure, pausing the effects of the #EndSARS saga which has heightened sociopolitical risks and the oscillating crude prices. The rebound is attributable to earnings expectations, even as sustainability of this trend remains weak, so market players should trade with caution and play defensive.

The ongoing earnings reporting season may have been the immediate factor supporting the market at this point, especially as more companies are yet to release their numbers to enable investors and traders ascertain their status of each company and earnings power that will support full-year dividend payout. The market has, so far, reacted positively to the few numbers that beat expectation and forecast. 

The market remains somewhat and shaky, despite the seeming retracement as there is divergence between the index and the indicators, especially as MACD has crossed the signal line to become bearish on a daily time frame. It is true that the low interest rate regime and yields in the fixed income market will support the equity price rally.

There were presentation of more corporate earnings by Chemical Allied Products and Guinness Nigeria Plc, showing mixed performance, which reflected the economic reality and impact of the COVID-19 pandemic on businesses, when compared to the figures posted in the corresponding period of 2019.

Thursday’s trading started on the upside and was sustained till midday, before oscillating in the afternoon on position taking and selloffs which pulled the NSE’s All-Share Index to an intraday high of 28,567.14 basis points, from its 28,645.21bps low. Thereafter, the index closed higher at 28,563.87bps.

Market technicals were positive and mixed as volume traded was lower than the previous session in the midst of breadth that favoured the bulls on high buying sentiment, as revealed by Investdata’s Sentiment Report showing 98% ‘buy’ volume and 2% sell position.

Total transaction volume index stood at 0.85 points, just as the impetus behind the day’s performance remained relatively strong, as Money Flow Index printed 68.44 points, from the previous day’s 69.04 points, an indication that funds left some stocks despite the up market.

Index and Market Caps

The benchmark index, at the end of Thursday’s trading, gained 114.38bps, closing at 28,563.87bps after opening at 28,449.71bps, representing 0.40% gain, just as market capitalization rose by N59bn to N14.93tr after opening of N14.87tr, representing 0.40% gain.

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The upturn recorded was due to price appreciation of stocks like MTNN, Stanbic IBTC, UACN, Lafarge Africa, Dangote Sugar and others. This impacted positively on the index, as Year-To-Date gains increased to 6.41%, while Market capitalization YTD gain toN2.60 billion, or 15.15% above the year’s opening value.

Bearish Sector Indices

All the sectorial performance indexes were largely bearish, except for the NSE Industrial goods that closed in the North by 0.15%, while the NSE Insurance led the decliners after losing 0.93%, followed by Oil/Gas, Consumer Goods and Banking indexes which were down by 0.07%, 0.06% and 0.03% respectively.

Market breadth was positive as advancers outnumbered decliners in the ratio of 21:12, while activity in volume and value terms were mixed, with transaction volume dropping by 4.67% to 311.33m shares, compared to the previous day’s 326.58m units. Trade value climbed 11.03% up to N4.69bn from N4.22bn at the midweek. Volume was boosted by trades in Guaranty Trust Bank, Access Bank, Zenith Bank, FBNH and UBA.

UACN and Union Diagnostic were the best performing stocks, after gaining 8.33% and 8% respectively, closing at N7.15 and N0.27 each, on market forces. On the flip side, WAPIC Insurance and UACN Property lost 9.09% and 3.66% respectively, closing at N0.40 and N0.79 respectively on profit taking.

Market Outlook

We expect this volatility to continue, as investors exit positions to hold cash in the midst of the Q3 earnings reporting season.

The mixed intraday movement is likely to persist for the rest of October in the midst of expected earnings, profit booking, as well as the mismatchedineconomic 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 mismatched policies and implementations.

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

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Tel: 08028164085, 08032055467

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