NGSE Index Suffers Another Deep Cut On Earnings Reactions, Dividend yields Gets Better Still
Market Update for March 9
The Nigerian Stock Exchange again closed negative on Tuesday, overpowered by the bears, propelled by seaming negative reactions to the audited full-year audited numbers presented on Monday by the United Bank for Africa, and in particular, the dividend cut. This led to selloffs and panic exit among investors, a situation that rubbed off on other banking stocks and blue chip companies, made worse by its coinciding with the share price adjusted of Zenith Bank for the N2.70 per share dividend proposed by its directors. This further helped to drag the market down in the midst of earnings season.
Also on Tuesday, the market has finally broke down the 39,000 mark again on market correction and selloffs, ahead of a major support level around 38,464.00bps. A breakdown of this point should lead to the next visible support at 34,396.3 points, following which value and growth investing should be the next rational strategies to adopt in this market as things unfold.
Note, therefore, that technically, the ongoing negative move has been described as market correction, even as the consistent downtrend could be linked to the sharp rally recorded in 2020 and in January, ahead of the full year earnings season and Q1 numbers, coupled with favorable and positive economic indices. Market rebound can coexist with the uptrend in fixed income yields, following which we advise investors to play defensive and dividend stocks to reduced investment risk around the market.
Also important at this time is the ongoing recovery in crude oil prices, as Brent now trades above $70 per barrel and farther above the government’s benchmark budget price, which means that public spending would receive a boost if it continues and oil price even attains the projections, driving economic fundamental and recovery. It would also require a realignment of fiscal and monetary policies to make them complementary for the nation to achieve the desired economic objective.
Tuesday’s trading opened on the downside and was sustained throughout the session on selloffs among bellwether stocks, a situation that pushed the composite index below 39,000 psychological line to an intraday low of 38,686.85 basis points from its high of 39,319.17bps, and thereafter closed below its opening point at 38,686.85bps on above average traded volume.
Index and Market Caps
The key performance index, at the end of Tuesday’s trading suffered the deepest cut in recent time, losing 709.72bps to close at 38,686.85bps after opening at 39,396.57bps, representing a 1.80% decline. Similarly, market capitalization fell by N371.33bn, closing at N20.24tn, from previous day’s N20.61tr, which also represented 1.80% depreciation in value.
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The day’s downtrend was driven by selloffs in stocks like MTNN, Lafarge, FBNH, UBA, Julius Berger, Access Bank, Zenith Bank, and Guaranty Trust Bank, among others. This impacted negatively on Year-To-Date loss which rose to 3.93%, just as market capitalization loss increased to N815.61bn, or 3.87% below its opening value.
Bearish Sector Indices
All the sectorial performance indexes were in the red, except for NSE Consumer goods that closed higher by 0.39%, while the NSE Bankingindex led the decliners, after losing 5.30%, followed by Insurance, Industrial goods and Oil/Gas with 0.63%, 0.52% and 0.15% respectively lower.
Market breadth turned negative, as decliners outnumbered advancers in the ratio of 26:14; just as transaction in volume and value terms grew, with stockbrokers exchanging 489.98m shares worth N6.65bn. Volume was driven by trades in UBA, Mutual Benefits Assurance, FBNH, Access Bank and Zenith Bank.
Champion Breweries and Neimeth Pharmaceutical were the best performing stocks gaining 9.78% and 9.71% respectively, closing at N2.02 and N1.92 per share respectively on market forces. On the flip side, UBA and Eterna lost 10% each, closing at N7.20 and N5.13 per share, on panic exit and selloffs.
Market Outlook
We expect the losing momentum to slowdown as more corporate earnings hit the market in the face of rising Treasury Bills yields, oil prices and high dividend yields during this earnings season, as the pullbacks offer bargain hunters 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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