Loss Momentum May Slowdown, As Investors Position Ahead Of Early Filers

 

Market Update for February 8

Equity prices moved further lower on the Nigerian Stock Exchange (NSE) Monday, starting the week on a negative note, thereby extending the bear transition for the sixth consecutive session on a low traded volume, but positive breadth. This signals a change in trading pattern that supports reversal, which is a function of market forces in the next trading day to confirm trend.

As the spread of Coronavirus pandemic slows down in different parts of the world, and with the vaccine rollout efforts likely to generate and support an increased buying interest, market players remaining optimistic about the outlook for the global and domestic economy,

Also, on Monday, the International Monetary Fund (IMF), following the conclusion of the Article IV consultation with Nigeria, said given the impact of the pandemic the Nigerian economy could contract by as much as 3.2% in 2020 when its final GDP figures are released in the coming weeks. The good news is that it could turn the corner this year when it is projected to grow by 1.5%, depending on how certain things play out during the year (READ MORE).

Following the pullbacks seen in the previous week, bargain hunting activities are obvious in the market as revealed by the positive breadth and low traded volume that indicates the possibility of smart money marking up prices ahead of the earnings reporting season, while early filers are likely to release their numbers any moment from now.

The relative market stability in the midst of continued profit taking, reactions to the Q4 unaudited earnings news continue, with investors taking advantage of the price correction to reposition. These are also happening at a time oil price is at its one-year high of $60.10, and the improvement in fixed income yields is yet no threat to the stock market, given that the dividend yields of many companies remain attractive.

However, with the expected 2020 full-year audited reports and improved dividend yields as a result of this correction, the market looks to early filers like United Capital, Africa Prudential, Zenith Bank, and Nigerian Breweries, among others, to start submitting their scorecards from this week. This situation could obviously change the current trend, depending however on the strength of their corporate actions. 

Meanwhile, Monday’s trading opened on the upside, turning red between the midday and afternoon on profit taking and selloffs in the banking, consumer and insurance, which pushed the composite All-Share index to an intraday low of 41,536.70 basis points, from its highs of 41,737.056bps. Thereafter, the session notched some points but still finished below its opening level at 41,564.31bps.

Market technicals were negative and mixed, as volume traded was lower than the previous day’s in the midst of breadth that favoured the bulls on high selling pressure as revealed by Investdata’s Sentiments Report showing 86% ‘sell,’ and 14% buy position. Total transaction volume index stood at 0.60 points, just as the momentum behind the day’s performance remained relatively strong, with Money flow index dropping to 47.86pts, from the previous day’s 54.86pts, indicating that funds left the market as selloffs persist,

Index and Market Caps

At the end of Monday’s trading, the benchmark NSEASI shed 114.78 basis points, closing at 41,564.31bps from the 41,709.09bps it opened, representing a 0.35% decline, just as market capitalization lost N74bn, closing at N21.74 trillion from N21.82tr, which represented 0.34% decline. This marginal difference in both indicators was due to the listing of 10 million new ordinary shares of Briclinks Plc at N6.26 per unit.

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Monday’s downtrend was driven by profit taking and selloffs in Guaranty Trust Bank, Zenith Bank, Flour Mills, PZ Cussons, Champion Breweries, and Dangote Sugar, among others. ‘This impacted negatively on the market, reducing Year-To-Date gain to 3.21%, just as YTD gain in market capitalization stood at N745.01bn, or 3.34%.

Bearish Sector Indices

All the sectorial indexes were bearish, save for the NSE Industrial Goods that closed 0.05% higher, while the NSE Banking index led the decliners, losing 2.68%, followed by the Insurance, Consumer and Energy with 0.84%, 0.25% and 0.01% lower respectively.

Market breadth turned positive, as advancers outnumbered decliners in the ratio of 22:16; just as activities in volume and value terms were down by 29.45% and 54.65% respectively, while stockbrokers traded 340.28m shares worth N2.64bn, as against the previous day’s 482.32m units valued at N5.38bn. The day’s volume was driven by trades in UBN, FBNH, Access Bank, Transcorp and Zenith Bank.

Multiverse and Fidson Healthcare were the best performing stocks, gaining 8.33% and 8.30% respectively, at N0.26 and N6.00 per share, on market forces and dividend expectations, while on the flip side, Champion Breweries and PZ lost 9.75% and 9.73%, closing at N2.50 and N5.11per share, on profit taking.

Market Outlook

We expect the market to slowdown its losing momentum and profits taking, as bargain hunters take advantage of the pullbacks to reposition their portfolios ahead of earnings expectations and reaction to numbers that would be unveiled. This is given that dividend yield remains relatively high. We advise investors to target dividend-paying stocks and fundamentally sound companies with growth prospect in 2021, looking the way of mispriced ones, especially given the rising oil prices that had so far supported the economy and equity market. Despite the seeming improvement in the fixed income yield that had remain in negative real return due to high inflation.

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.

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

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ambrose.o@investdataonline.com

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Tel: 08028164085, 08032055467

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