CBN’s Move Against Crypto currency Investors May Boost Funds Inflow To NGSE
Market Update for the Week Ended Feb. 5 and Outlook for 8-12
The first full trading week of February ended last week on the Nigerian Stock Exchange (NSE) with a negative sentiment and outlook, on the back of profit taking and selloffs that halted the uptrend and recovery move. This reflected in the benchmark All-Share index (ASI) which had been up on positive sentiments and improved liquidity, among others.
It is noteworthy that on the last trading day of week, the market signaled a change in pattern, with bargain hunters taking advantage of the pullbacks to reposition in different classes of stocks that had suffered price cuts during the period. Investors continue that reviews ahead of the earnings reporting season, and release by the National Bureau of Statistics of the year’s first inflation data.
Friday’s buying sentiment in the midst of profit booking and portfolio repositioning helped the market resist further decline, as it closed marginally lower on a low traded volume and negative breadth.
The composite NSEASI witnessed a pullback during the week, breaking down the 42,000 psychological lines on profit booking in high cap stocks, and buying interests in dividend paying equities. These boosted the week’s volume, revealing new positioning in sectors that were behind during late last year’s rally.
In equity investment and trading, taking profit is as important as positioning in fundamentally sound stocks. After all, you only make money when you close a position and take money off the table.
Notwithstanding the current trend, Investdata believes the market still has some inherent value for those investors who know where to look.
We note that during the last year and month, analysts and investors have spoken a lot about valuation, even as equities repeatedly make new 52-week highs, with questions centered on overvalued stocks and the market’s overbought region.
The Nigerian stock market has been driven and supported in recent months by factors such as the low interest rate regime, following the decision of the monetary policy authority to leave rates unchanged at its meeting that ended last week, and the rising crude oil price in the international market. Changes in oil price are a function of demand and supply, with output determined by the Organisation of Petroleum Exporting Countries. We note the rise in price arising from the voluntary production cut by some oil producing countries, including OPEC and non-OPEC members, otherwise known as OPEC+, following which it current hit its year-high of $59.37 per barrel, a juicy improvement on Nigeria’s 2020 and 2021 budget benchmark prices of $40 and $45 respectively.
Movement Of NSEASI
It was a bearish trading week, with five sessions of down markets due to profit-taking and portfolio reshuffling dominated by selling positions.
The index opened on the downside Monday, losing 0.20% due to profit booking and indecision among players, a trend that was sustained on Tuesday when the benchmark index closed 0.74% lower. The bearish trend was extended for the rest of the week as the index lost 0.1% at the midweek, before shedding 0.51% and 0.18% on Thursday and Friday respectively. This resulted in a total loss of 1.66% during week, from previous week’s 3.44% gain, on a high traded volume and negative breadth.
Specifically, the index shed 703.57 basis points, closing at 41,709.09bps, after opening the week at 42,412.66bps. During the period, the index touched an intra-week low of 41,522.14bps, compared to its highs of 42,472.56bps. This resulted from profit taking and increased selling pressure in high and medium cap stocks, just as market capitalization fell by N368bn to N21.82tr, from the previous weekend’s N22.19tr, representing a 1.66% value loss.
The advancers’ table was dominated by low and medium cap stocks, reflecting the mixed sentiments, with the trading pattern revealing profit taking and selloffs, on a negative negative that supports lower prices and pullbacks among all classes stocks.
During the period, decliners outpaced advancers in the ratio of 60:22 on a selling sentiment and weak momentum as Money Flow Index read 80.50bps, down from 88.81 points in the previous week. During the week, many companies released unaudited quarterly and 2020 full year result, just as more quoted companies notified the Exchange of closed period for their audited 2020 financials and board meetings.
NSEASI WEEKLY CHART MOVEMENT
The NSE’s index action was bearish and volatile during the week on a mixed sentiments, as discerning investors accumulates position among dividend paying stocks ahead of the release of 2020 financials in this month and next. Also, the index is trading above the seven, 50 and 200-Day Moving Average, despite breaking down the 42,000 mark strong support level on a high traded volume and mixed sentiments. This is likely to reverse as more players’ position for the rest of the month in expectation of earnings.
Nevertheless, it is expected that the market will turn up at any time especially, as early filers start releasing their numbers to the market and trading above the 42,000bps level.
This is also especially as factors that supported the market to this level remain intact, even as the recent decision of the CBN to shut out crypto currency traders from the Nigerian financial system. We see this as likely to herd the investors into the equities market, serving as a new tonic for rebound, especially as the fixed income yield remains unattractive, despite the seeming improvement.
The strong resistance level to watch out for on the NSE is within 42.412.66 and 43,000bps, and a break out of these levels, will attract new positioning by traders, given that crude oil is trading almost at $60 in the international market and the government is expecting the first batch of Coronavirus vaccines in this month.
However, we envisage a positive outlook for the rest of Q1, while not ruling out profit booking any time soon, after the market had maintained an uptrend since last year. Also, the impact of the ban on cryptocurrency, border reopening, expected COVID-19 vaccine importation, high liquidity, and extension of the 2020 capital budget implementation. There is also the impact of oil prices trading above $59 per barrel, from its March 2020 low, given strong Money Flow Index, as MACD remains in the bullish zone on a weekly chart. ‘Buy’ volume for the period stood at 20% and sell position at 80% with total transaction index at 1.45.
Bearish Sectoral Indices
The week’s sectoral indexes closed the week bearish, led by NSE Insurance with shed 6.01%, followed by Consumer Goods, Banking, Industrial goods and Oil/Gas which closed 3.22%, 2.28%, 2.07% and 0.16% lower respectively.
The general market outlook remains strong and mixed in the short-term; following which investors should take short and medium-term positions, while diversifying their portfolios along long-term trades to protect capital. This, they can do, by considering sectors with high upside potentials on the strength of earnings and policy influence. The recent market pullback calls for portfolio adjustments and realignments as unaudited numbers from some companies and sectors will expectedly come mixed, given the negative impact of the COVID-19 pandemic and the arson that followed the #EndSARS protests on full-year results, as revealed by the macroeconomic indices.
Transactions in volume and value terms were up by 7.78% and 6.49% respectively, as investors exchanged 2.77bn shares worth N29.69bn, compared to previous week’s 2.57bn units valued at N27.88bn. Volume was driven by trades in Financial Services, Conglomerates and consumer goods sectors, particularly stocks like UBN, FBNH, Transcorp, Zenith Bank and Guaranty Trust Bank.
The best performing stocks for the week, were McNichol and Jaiz Bank which gained 43.14% and 10.77% respectively, closing at N0.73 and N0.72 each on market sentiments and expected full-year earnings reports, while Linkage Assurance and Japaul Gold lost 33.33% and 17.58% respectively, at N0.60 and N0.75 per share on market forces and profit booking.
Market Outlook
We expect the market to slowdown its losing momentum and profits taking, and reverse up on bargain hunters take advantage of the pullbacks to reposition their portfolios ahead of earnings expectations and reactions to numbers that would be unveiled, given that dividend yield remains relatively high. We advise that you target dividend-paying stocks and fundamentally sound companies with growth prospect in 2021, looking the way of mispriced ones, especially given the low interest rates regime and sustained oil price rally that have so far supported the economy and equity market.
There is, nonetheless, also the likelihood of a reversal in trend and continuation, as investors position in high yields stocks ahead of the earnings season. Also, important is the fact that technical indicators reveal overbought on the weekly and daily chart, while the RSI read 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, especially now that the outcome of the MPC meeting has given the market a direction, until the next gathering in March.
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
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Tel: 08028164085, 08032055467
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