NSEASI Resists Further Decline, As Investors Seek Undervalued, Div Stocks

Market Update for January 25

The nation’s stock market, on Monday, recorded yet another mixed session, closing slightly higher, while halting the loss position of the previous session on low traded volume, as investors continue to trade cautiously, while looking forward to Tuesday’s outcome of the Central Bank of Nigeria (CBN) Monetary Policy Committee (MPC). The importance of the meeting, the first for the year, as regards Monetary Policy Rate, among others, expected to give investors a direction in the New Year, even as the market prepares for the 2020 full-year earnings reporting season.

Despite, the seeming yield adjustment in the fixed income market, Investdata believes that should the MPC members vote to hold rates unchanged, and the CBN would continue the use of unconventional measures such as Loan to Deposit Ratio, to directly intervene in critical sectors of the economy for job creation. This will also help to stimulate the desired economic growth that will influence macroeconomic fundamentals needed to drive recovery and stability. A decision to hold all rates stable will trigger positive market performance despite the overbought state of the general market. This is as demand for high yield dividend paying stocks increases amid the negative real rate of returns in the fixed income space.

The mixed sentiment and selloff among the low priced stocks continued at the session as market breadth closed negative after kobo equities that recently dominated the gainers chart suffered losses, while speculators who earlier provided liquidity for the stocks took profit.

However, the market is extending its current ranging or side trending to resist further decline, with a strong support level at 41,000 on a low traded volume and negative breadth, as we reiterate our earlier warning that traders should play with caution at this time. NSE’s All-Share index action and money flow index looking up at the end of Monday’s trading.

Meanwhile, the day’s trading started slightly on the upside and oscillated in the mid-morning to late afternoon on position taking that pushed the benchmark index to an intraday high of 41,092.23 basis points, from its lows of 40,973.85bps. Thereafter, the market closed above its opening level at 41,088.96bps.

Market technicals were positive and mixed, as volume traded was lower than the previous day’s in the midst of breadth favouring the bears on buying sentiments as revealed by Investdata’s Sentiments Report showing 97% ‘buy,’ and 3% sell position. With a total transaction volume index of 0.61 points, the impetus behind the day’s performance remained relatively weak, as Money flow index inched up to 45.97pts, from the previous day’s 41.60pts, indicating that new funds entered the market.

Index and Market Caps

The benchmark NSEASI, at the end of Monday trading gained 86.97 basis points, closing at 41,088.96bps after opening at 41,001.99bps representing a 0.21% rise. Similarly, market capitalization rose by N45.49bn, closing at N21.49tr, from N21.45tr on Friday, representing a 0.21% value gain.

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The session’s upturn was driven by buying sentiments in Dangote Cement, Airtel Africa, Access Bank, UBA, Lafarge Africa, Julius Berger, and FBNH, among others, raising Year-To-Date gain mildly to 2.03%, just as YTD gain in market capitalization stood at N453,18bn, or 2.56%.

Mixed Sector Indices

Performance indexes across the sectors were mixed, with the NSE Industrial goods and Banking closing 0.54% and 0.49% higher respectively, while the Oil/Gas index led the decliners after losing 0.80%, followed by Consumer Goods and Insurance with 0.72% and 0.58% respectively down.

Decliners outnumbered advancers in the ratio of 30:19; just as transactions in volume and value terms were down by 43.68% and 47.54% respectively, as stockbrokers exchange 333.1m shares worth N2.64bn, from the previous day’s 591.46m units valued at N5.07bn shares.  This volume was boosted by activities in Transcorp, Mansard Insurance, Fidelity Bank, UBA and Zenith Bank.

Academy Press and May & Baker were the best performing stocks after gaining 10% and 9.86% respectively, closing at N0.44 and N4.01 per share, on market sentiment and earnings expectations. On the flip side, C & I Leasing and Royal Exchange lost 10% each, closing at N5.13 and N0.36 per share, on market forces and profit taking.

Market Outlook

We expect the mixed performance, sentiment and profits taking to linger, as the NSEASI continues to range, resisting further decline, just as profit booking and buying interests in undervalued and dividend-paying stocks persist, ahead of the market’s major earnings reporting season. This is especially as low interest rates and oil price have so far supported the Nigerian economy and equity market. There is also the likelihood of a reversal in 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 expected 2020 full earnings reports, while all eyes are on the outcome of next week’s MPC meeting and its outcome to give the market direction.

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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