Volatility On NGSE May Linger, As Breakout, Pullback Ahead Of Q3 Earnings Season

Market Update for October 15

It was a bullish and mixed performance in the first half of October, the last eight consecutive days of which witnessed nationwide protest by youths against Police brutality using the code #EndSARS. SARS (Special Anti-Robbery Squad), has reportedly become a notorious terror gang for extra-judicial killings and maiming of often innocent persons.

Meanwhile, Thursday’s trading activities on the Nigerian Stock Exchange (NSE) closed flat, with low traded volume and mixed sentiments, reversing previous session marginal gain on a day the National Bureau of Statistics (NBS) released the September Consumer Price Index (CPI), showing that inflation jumped to a 30-month high at 13.71%.

The NSE index trended sideways during the session, indicating that the market is searching for direction, or awaiting a much-needed trigger to either rise or fall, which the expected Q3 earnings reports would provide. Earnings season in any market across the world is an unusual time, due to the momentum associated with the period. A company can beat its earnings expectation, but offer poor guidance or projection, dragging its share price down, even as the reverse can be the case.

The other possible effect of an earnings season is that it could leave the market somewhat unchanged overall, while many individual stocks make some big moves in either direction. So far, this earnings season has been quiet on that front, with the pandemic resulting to lower expectations.

However, the combination of earnings season and the low interest rate regime in the face of a hyperinflation could lead to some big swings or surprises, particularly in individual stocks, as funds pour into equity assets.

Nigeria’s headline inflation has risen consistently for 13 months since the Federal Government closed the country’s borders in August 2019. The inflationary pressure in September was largely impacted by higher food prices due to high cost of transportation, production and insecurity that has driven many framers away from their farmland, in addition to the hike in electricity tariff and the pump price of premium motor spirit (petrol), with negative impacts on the cost of goods and services across the country. The soaring inflation has further deepened the negative returns in fixed income assets and other investment windows.  Investors, therefore, have to invest wisely, going forward.

It’s high the government and its economic managers revisit the continued border closure that continues to pressure prices of goods and services in the absence of domestic alternatives, following which those successfully snuggled into the country come at a high cost to the end user. Investdata believes that Nigeria’s land borders, or an integral part of it cannot remain closed, and we expect prices to drop, besides the fact that government just recently hiked electricity tariff and the pump price of fuel. Government may therefore need to revisit and think through its policy options at this time, for the low interest regime rate to drive economic recovery and make the expected impact.

Meanwhile, Thursday’s trading started green and oscillated between mid-morning and late afternoon on profit-taking and positioning in expectation of more earnings reports that pulled the NSE index to an intraday low of 28,333.06 basis points, from its high of 28,364.47bps. The index closed slightly lower than it opened at 28,344.04bps on a positive breadth.

Market technicals were positive and weak as volume traded was higher than in the previous session, in the midst of a positive breadth and mixed sentiments, as revealed by Investdata’s Sentiment Report showing 35% ‘buy’ volume and 65% sell position.

Total transaction volume index stood at 0.96 points, just as the momentum behind the day’s performance remained strong, while Money Flow Index printed 73.74 points, from the previous day’s 79.08 points, an indication that funds left some stocks.

Index and Market Caps

At the end of Thursday’s trading, the benchmark NSE All-Share Index slipped by a marginal 0.29bps, closing at 28,344.04bps after opening at 28,344.33bps, representing 0.001% loss. Market capitalization fell by N150m at N14.81tr from opening value of N14.82tr, which also represented 0.01% value loss.

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The day’s slight pullback was due to profit booking in Guaranty Trust Bank, Access Bank, Africa Prudential, and Fidson Healthcare, which impacted mildly on the index leaving Year-To-Date gains at 5.60%, and Market capitalization YTD gain at N1.86bn, or 14.37% above the year’s opening value.

Mixed Sector Indices

The sectorial performance indexes were largely bearish, except for the NSE Consumer and Industrial goods that closed higher by 0.40% and 0.30% respectively, while the NSE Banking led the decliners after losing 0.74%, followed by Insurance and Oil/Gas indexes which were down by 0.45% and 0.29% respectively.

Market breadth remained positive as advancers outnumbered decliners in the ratio of 13:11, while transactions in volume and value terms were up by 59.66% and 60.56% respectively, with investors trading 342.19m shares worth N5.04bn, as against the previous 278.42m units valued at N3.14bn. Volume was boosted by trades in UBA, Zenith Bank, Guaranty Trust Bank, Transcorp and FBNH.

Eterna extended its rally to six consecutive sessions, remaining the best performing stock, just as Lafarge Africa, gaining 10% and 4.1% respectively, closing at N5.29 and N18.05 each on market sentiment and earnings expectation. On the flip side, Aiico Insurance and GSK lost 3.6% and 3.4% respectively, closing at N0.81 and N5.60 respectively on profit taking and market forces.

Market Outlook

We expect this volatility to continue, even as the market seems to range, looking at the sideways trending and candlestick formation pattern that reveals a breakout or pullback at this point, ahead of the Q3 corporate earnings season and healthy inflow of funds due to prevailing low rates in money market.

The mixed intraday movement is likely to persist this October in the midst of expected earnings, profit booking, as well as the mismatch in 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

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Tel: 08028164085, 08032055467

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