NGSE Indicators Rise, As Investors Play Defensive, Eye Dividend Paying Stocks

Market Update for January 7

Nigerian equities closed higher on Thursday as bargain hunters positioned in high and medium cap stocks ahead of the earnings season and expected economic data, thereby extending the gaining momentum for the second consecutive session on a high traded volume and positive sentiment.

Although, the trading pattern has continued to change, reflecting market dynamics, especially as discerning investors take position in undervalued stocks with high dividend yields, as market sentiment remain positive. This was despite the Money Flow Index and other technical indicators maintaining their bearish divergence from the benchmark index, and notwithstanding the fact that the market closed higher.

Just as we have noted repeatedly, nevertheless, the factors that drove the market to this level are still intact, especially with crude oil price hitting $54 per barrel, ahead of the proposed voluntary one-million-barrel production cut in February and March by Saudi Arabia. This is coming in the face of the ongoing second wave of the economic lockdowns as part of efforts to curtail the spread of the Covid-19 pandemic now threatening the global and domestic economies.

The outcome of the next meeting of the Central Bank of Nigeria’s Monetary Policy Committee, and economic indicators will determine how the nation’s equity market will react to the 2020 full-year earnings season and the level of funds that will flow into equity space at time. We therefore urge investor to play defensive, while targeting dividend paying stocks for safety and while ensuring a balanced portfolio.

Despite the market recovery from Tuesday’s loss, we still believe investors should not underestimate the possibility of profit-taking and pullbacks any time soon, because price correction is inevitable after last year’s significant market rally. We note, that this possibility notwithstanding, the Nigerian equity market still has a trading pattern that supports an uptrend. The fact that the index is still at overbought region that signals ‘sell,’ as revealed by technical indicators which support a possible market pullback.

Thursday trading opened slightly in the upside and oscillated between the mid-morning and afternoon on buying interest in dividend paying stocks which numbers are expected, and profit taking in others to rebalance portfolios. This pushed the composite Nigerian Stock Exchange’s All-Share index to an intraday high of 40,629.02 basis points, from its low of 40,310.36bps, before closing above the day’s opening level at 40,590.85bps on a positive breadth.

Market technicals on Thursday were positive, especially as volume traded closed higher than previous day’s in the midst of breadth that favoured the bulls on buying sentiment as revealed by Investdata’s Sentiments Report showing 91% ‘buy’ volume on a total transaction volume index of 0.59 points. The impetus behind the day’s performance remained strong, with Money flow index staying flat at 87.67pts, from the previous day’s 87.56pts, indicating that funds are still in the market.

Index and Market Caps

At the closed of Thursday’s trading, the NSESASI gained 125.70 basis points, after opening at 40,465.15bps representing a 0.31% up, just as market capitalization rose by N65.73bn, closing at N21.22tr, from its N21.16tr opening value, representing a 0.31% appreciation in value.

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Thursday uptrend was driven by buying interest in stocks like Seplat, Guaranty Trust Bank, Zenith Bank, NB, Presco, Ardova, Dangote Sugar, FBNH, FCMB, and Africa Prudential, among others. This impacted mildly on Year-To-Date gains, which stood at 0.79%, just as YTD gain in market capitalization stood at N167.39bn, representing a 0.79% growth.

Mixed Sector Indices

Performance indexes across the sectors were mixed, with the NSE Insurance closing slightly lower at 0.02%, while the NSE Industrial goods was flat and NSE Oil/Gas led the advancers, gaining 5.65%, followed by Consumer goods and Banking that were higher by 0.87% and 0.53% respectively. 

Market breadth remained positive, as advancers outweighed decliners in the ratio of 27:17; just as activities in volume and value terms were up by 754.92% and 243.81% respectively, after stockbrokers crossed 2.13bn shares worth N7.51bn, as against previous day’s 249.55m units valued at N2.18bn. The day’s volume was boosted by Champion Breweries, UBA, Dangote Sugar, Fidelity Bank and Access Bank.

Livestock Feeds and Seplat were the best performing stocks during the day, after gaining 10% each, closing at N1.65 and N451.00 per share, on earnings expectations and market sentiments as crude price keep rising. On the flip side, Sovereign Trust Insurance and Courtville Business Solution lost 9.09% and 8.75% respectively, at N0.20 and N0.21 per share, on profit taking and market forces.

Market Outlook

We expect the mixed performance to continue on profit booking and buying interests in undervalued and dividend-paying stocks ahead of the market major earnings reporting season, especially as low interest rates and oil price oscillation have so far supported the Nigerian economy and equity market. There is also the likelihood of reversal of trend and continuation, as investors position in high yields stocks in the New Year. Also, important is the fact that technical indicators reveal overbought on the weekly and daily chart, while the RSI reads 70 points and above, a situation that supports the likelihood of another correction.

However, the strong and faster recovery may continue, depending on market forces, going forward, as propelled by the quality of Q3 earnings presented, especially by the tier-1 banks, even as analyses of numbers released so far have helped repositioning of investors’ portfolios on the strength of sectoral and company’s performances.

The NSE’s index action and indicators are looking up in the same direction on a very high traded volume and positive buying sentiments.

Again, the current undervalued 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 in 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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