Earnings Reports Delay NGSE Index Recovery, As Oil Price Hit $65.14pb In Onset Of New Supercycle
Market Update for February 16
The oscillating sentiments and trend on the Nigerian Stock Exchange continued at the midweek, with the composite All-Share index closing slightly lower on a negative breadth and low traded volume. This is an indication that the market is resisting further decline, while the recovery move remained intact, waiting for a trigger, especially at this time when all eyes are on audited financials of listed companies expected any moment from now.
These numbers and the ongoing circular flow of funds in search of higher returns at a reasonable risk will determine the next moves as the market enters another season.
The unclear economic policy of the government and the growing level of insecurity in the system continue to reflect on economic indices emanating from the Central Bank of Nigeria and the National Bureau of Statistics. A pointer to the fact that all is not well, is the latest Consumer Price Index of 16.46% in January, the highest the 17th consecutive months, or since April 2017, as against 15.78% in December. Once again, inflation was mainly driven by food inflation hit more than its 12-year high at 20.57%, a situation that has being linked to the disruptions arising from the pandemic and US$ shortages, as well as the lingering restrictions on imports of certain food items, despite the reopening of the country’s land borders as announced by the President. On a monthly basis, consumer prices have increased by 1.49%, slowing from a 1.61% rise in the previous month.
With the continued mixed and unimpressive economic data, it is time for economic managers and policy makers to rethink and make policies that will complement each other so as to achieve one purpose or goal, especially the fiscal and monetary authorities. The continued hike in pump price of fuel in the name of deregulation of downstream oil sector, poor infrastructure and insecurity in the nation, despite reopening of the land borders have affected cost of living and thereby impoverishing many Nigerians. This has increased the cost of transportation and will continue to affect prices of commodities in the market and stores, even as the Federal Government has refused to do the expected- fix the nation’s refinery that have remained drain pipes to the nation’s revenue, while recording huge losses that could have gone a long way to put them back into use. If the refineries were working, government could have sold crude oil to them at a subsidized rate that is set at the beginning of the year to limit variations in fuel price.
These, and many others, have for some time being the major concerns among local and foreign investors, following which players in the equity market players should invest wisely, guided by set investment objectives- entry and exit strategies to survive and profit from the expected new trend. In that way, should the full-year earnings reports and dividend news fail to impact and support the current trend, a big rotation in sector trends should also guide you, going into the future.
Midweek’s, trading started slightly green, before oscillating for the rest of the session, on profit taking and repositioning of portfolios ahead of dividend news and rewards, which pushed the benchmark index to an intraday low of 40.494.35 basis points, from its highs of 40,641.60bps, and thereafter closed below its openingfigure at 40,494.35bps.
Market technicals were weak and mixed, with volume traded lower than previous day’s in the midst of negative breadthand mixed sentiment as revealed by Investdata’s Sentiments Report showing 66% buy volume and 34% sell position. Total transaction volume index stood at 0.43 points, just as energy behind the day’s performance remained weak, with Money flow index dropping to 26.48pts, from the previous day’s 33.06pts, indicating funds left the market on profit taking.
Index and Market Caps
At the close of Wednesday’s trading, the All Share Index shed 29.03bps, closing at 40,465.32bps, having opened at 40,494.35bps, representing 0.07% drop. Market capitalization similarly lost N15.19bn to close at N21.17tr from N21.17tr, also representing 0.07% value loss.
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The day’s downturn was driven by the selloffs in BUA Cement, UACN, UBA, Access Bank, Vitafoam, Guinness, Fidson, and Japaul Gold, among others. Year-To-Date gain drop to 0.48%, just as that of market capitalization stood at N112.44bn, or 0.58%.
Mixed Sector Indices
Performance indexes across the sector were mixed, as NSE Insurance and Oil/Gas closed higher by 1.92% and 0.20% respectively, while NSE Industrial goods led the decliners after losing 0.80%, followed by Banking and Consumer goods with 0.24% and 0.09% respectively
Market breadth turned, as decliners outnumbered advancers in the ratio of 22:17; just as activities in volume and value terms were down by 72.82% and 166.33% respectively, after stockbrokers transacted 244.2m shares worth N2.65bn, as against previous day’s 356.43m units valued at N5.76bn. Volume for the session was driven by trades in FBNH, Transcorp, Guaranty Trust Bank, Zenith Bank and Vitafoam.
Julius Berger and Honeywell Flour Mills were the best performing, after gaining 9.73% and 9.60% to close at N20.30 and N1.37 per share respectively, on earnings expectation and market forces. On the flip side, Beta Glass and Japaul Gold lost 9.75% and 8.86%, closing at N50 and N0.72 per share, on profit taking and market forces.
Market Outlook
We expect the market to look up and continue it recovery move as oil price hit $65.14 as at yesterday, with big global banks forecasting oil to $100 in the new oil supercycle that just started, on this note, the current divergence of the nation’s stock market and rallying oil price will not last, as bargain hunters increase their positions ahead of better dividend yield occasioned by price corrections that had created entry opportunities for discerning investors ahead of earnings expectations.
Again, the way to go is: Target dividend-paying stocks and fundamentally sound companies with growth prospects in 2021, looking the way of mispriced equities. This is especially given the rising oil prices that have so far supported the economy and equity market, despite the seeming improvement in the fixed income yield which had remained at negative real rate of return due to the subsisting high inflation.
However, the strong and faster recovery may continue, depending on market forces, going forward, as propelled by expected 2020 full earnings reports, until the next MPC meeting in March.
The NSE’s index action and indicators are in divergence on a low 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 new 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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