Volatility May Continue On NGSE, As Investors Digest Q3 Earnings, Readjust Portfolio
Market Update for October 28
The bull rampage on Nigerian Stock Exchange continued at the midweek as the upward momentum and increased buying interests sustained on influx of mixed corporate numbers at the peak of quarterly earnings reporting season. Add this to the further crash in yields at the last NTB auction of October 28, 2020, in the midst of the oversubscription and relative peace returning to the nation after weeks of the #EndSARS protests across the country.
The height of the protest was last week’s black Tuesday when soldiers shot at protesters at the Lekki Toll Plaza in Lagos, with the Nigerian Army admitting, after initially denying that any of their personnel was at the venue where the protesters had gathered for two week resulting in huge revenue loss to the Lagos State Government. The Army finally admitted that it was invited by the state government to enforce the curfew.
The sustained bull trend was despite the almost 6% slide in oil prices at the international markets as a result of the resurgence of Coronavirus (COVID-19) cases, while inventory buildup, while another around of lockdown is underway in many countries.
Also, with the number of better-than-expected earnings continues to fuel demand for stocks in the face of low interest rates and fixed income market yields, there is the high possibility of the monetary authorities sustaining this policy. Remember that the intention is to drive economic activities at a time the Purchasing Managers’ index has stayed below 50 points over the last six months, reflecting a the early effect of an economic contraction, notwithstanding the spike in October PMI to 49.4 points, from 46.9 points in September position. This is the impact of the continued easing of the lockdown and availability of cheaper funds through the various Central Bank of Nigeria (CBN) interventions in critical sectors of the economy.
Meanwhile, midweek’s trading opened slightly on the upside in the early hours and oscillated at mid-morning, before rebounding strongly on the back of impressive and mixed earnings from companies like Custodian Investment, Nestle, MTNN, BUA Cement, Total, Fidson Healthcare and others. These impacted the session positively, pushing the composite All-Share index across the 29,000 psychological line, where it touched an intraday high of 29,444.12 basis points from its 28,971.44bps loss on an above-average traded volume.
Market technicals were positive and strong with volume traded slightly lower than the previous session in the midst of positive breadth and buying pressure, as revealed by Investdata’s Sentiment Report showing 99% ‘buy’ volume and 1% sell position.
Total transaction volume index stood at 0.98 points, just as the momentum behind the day’s performance remained relatively strong, with Money Flow Index jumping to 71.43 points, from the previous day’s 61.39 points, an indication that funds entered some stocks.
Index and Market Caps
The benchmark index sustained its straight five sessions of back to back gains’ as investors weighed the corporate earnings released so far against dividend possibility. This helped the index gain 457,31bps at the end of Wednesday’s trading, representing 1.56% growth after opening at the 28,980.29bps. Similarly, market capitalization rose by N239.02bn to N15.38tr, after opening of N15.15tr, also representing 1.56% appreciation in value.
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Midweek uptrend was impacted by gains recorded in Nestle, Total, Flour Mills, Ecobank Transnational Incorporated, Guinness Nigeria, Custodian Invest, International Breweries, Eterna, Cadbury, FCMB, Eterna, Oando and NEM Insurance, among others. This increased the Year-To-Date gain of the index to 9.67%, while Market capitalization YTD gain climbed to N2.5tr, or 18.75% above the year’s opening value.
Bullish Sector Indices
All the sectorial performance indexes were bullish, led by the NSE’s Consumer Goods, which gained 5.66%, followed by the Oil/Gas up by 2.14%, while Insurance, Banking and Industrial goods closed higher by 1.52%, 1.18% and 1.12% respectively.
Market breadth remained positive as advancers outweighed decliners in the ratio of 41:5, while transactions in volume and value terms were mixed with traded volume down by 2.68% to 375.25m shares, from the previous 385.6m units. The value of trades however rose by 59.02% to N4.63bn, compared to the previous session’s N2.91bn. Volume was driven by trades in Zenith Bank, Fidelity Bank, ETI, Access Bank and BUA Cement.
Custodian Investment and Nestle Nigeria were the best performing stocks, gaining 10% each, and closing at N6.05 and N1292.50 respectively, on impressive Q3 numbers and interim dividend expectation from Nestle. On the flip side, Royal Exchange Assurance and Cutix lost 8.00% and 6.84% respectively, closing at N0.23 and N1.77 respectively on market forces and profit taking.
Market Outlook
We expect this volatility to continue, as market players digest the numbers released so far and readjust their portfolio on the strength of sector and company’s performance. There was a reversal in direction at the end of midweek trading as NSE index action and indicators consolidated, turning up to look the same direction on above average traded volume and positive buying sentiment.
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 mismatched 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 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 numbers and dividend on the strength of their earnings capacity as end of the year is at the corner, considering the seasonal swing trend that are associated with the last quarter of the year.
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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