Cautious Trading Ahead Of Next Week’s MPC Meeting, Amidst Earnings Inflows

 

Equity Market Update for March 18

Thursday’s trading turned positive on the Nigerian Stock Exchange (NSE), as bargain hunting for banking and cement stocks pushed the key performance All-Share index higher on a very high traded volume and wide positive breadth that signaled strength, after a long downtrend and sideways movement.

This reversal in trading pattern was led by banking stocks as first-tier players resisted further decline due to the changing trading environment, as well as happenings in the economy ahead next week’s crucial meeting of the Central Bank of Nigeria Monetary Policy Committee.

The uptrend that started on Tuesday, however, needs to be confirmed after the MPC meeting outcome, that informs our belief that players would likely trade cautiously today, being the last trading session for the week, as well as on Monday and most part of Tuesday, when the first hint of the MPC outcome is disclosed.

As mentioned earlier in previous updates, the market breaking down its 40,000 and 39,000 psychological lines is a sign of volatility, prior to breaking out the shortest seven-day moving average and ahead of the 14 and 20-DMA on the daily chart. There may be strong inflow into the market, given that the market has been quite since UBA Plc announced its dividend cut, which came as a surprise to investors because it was despite the bank’s positive numbers. 

Thursday’s release of Guaranty Trust Bank’s audited full-year report for 2020, with a final dividend of N2.70 proposed, as well as Zenith Bank’s attractive support price impacted the market and the stocks positively during the session. 

The rising bond yields and TB rates are not enough to scare investing public away from the market, an understanding of portfolio realignments and stock market dynamics will, however, help fund managers and others to play wisely in this changing environment.

Meanwhile, Thursday’s trading started on the upside and was sustained through the session, despite oscillating on buying interests in banking and other medium capstocks, as well as profit taking in insurance stocks. These pushed the benchmark index to an intraday high of 38,930.82 basis points from its low of 38,706.13bps, before closing above its opening point at 38,914.84bps.

Market technicals were positive and strong, with volume traded higher than previous day’s in the midst of breadth favoring the bulls on ahigh buying pressure as revealed by Investdata’s Sentiments Report showing 93% ‘buy’ volume and 7% ‘sell’ position. Total transaction volume index stood at 3.57 points, just as energy behind the day’s performance remained weak, with Money Flow Index looking up sharply at 44.26pts, from the previous day’s 22.46pts, indicating that funds entered the market on renewed buying interest.

The buying interest was demonstrated in the huge patronage of Unity Bank Plc as shown in the trading of its 1.0bn ordinary shares representing 8.56% of its total shares outstanding for N700.691m; followed the 200.187m units of Multiverse for N40.037m, while GTBank’s 122.177m shares changed hands for N3.552bn.

Index and Market Caps

The All Share index NSEASI, at the end Thursday transaction gained 208.71bps, closing at 38,914.84bps after opening at 38,706.13bps, representing a 0.54% growth. Similarly, market capitalization rose by N109.2bn, closing at N20.36tr, from previous day’s N20.25tr, which also represented 0.54% appreciation in value.

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The session upturn was impacted by the demand for stocks like Zenith Bank, Guaranty Trust Bank, Lafarge Africa, Dangote Sugar, United Capital, UBA, Access Bank, and FBNH, among others. This impacted positively on Year-To-Date loss, reducing it to 3.37%, just as market capitalization loss dropped to N722.99bn, or 3.10% below its opening value for the year.

Mixed Sector Indices

Performance indexes across sectors were mixed, as NSE Banking and Industrial goods index closed 4.40% and 0.16% respectively higher, while the NSE Insurance index led the decliners, losing 0.78%, followed by Consumer goods and Energy with 0.24% and 0.13% respectively lower.

Market breadth turned positive, as advancers outpaced decliners in the ratio of 22:11; just as activities in volume and value terms rose as investors exchanged 1.47bn shares worth N5.85bn.

Eterna and  Lasaco were the best performing stocks, gaining 9.96% and 8.33% respectively, after closing at N5.08and N1.30 per share respectively on  market forces. On the flip side, Linkage Assurance andCoronation Insurance lost 9.09% each, closing at N0.50 and N0.50 per share, on market forces and profit taking.

Market Outlook

We expect the mixed trend to continue as more corporate earnings hit the market in the face of rising fixed income market yields, oil prices oscillating and high dividend yields during this earnings season. Also, the pullbacks offer bargain hunters and income investors another opportunity to reposition, while more companies release their full-year numbers to support recovery. This is based on the fact that the rising fixed income yields may not be enough to scare all investors away from the equity market.

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.

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