2021Q1: NGSE Sheds 3.04%, Offers Short-term Prospects In Sound, Dividend Stocks
Market Roundup for Q1 2021
The first quarter of2021 ended on a mixed and highly volatile note to start the year on the Nigerian Stock Exchange, coming after the market witnessed a bull-run in 2020 as a result of strong positive sentiments and price appreciation of high cap stocks that supported the rally. This was propelled by low yield in the fixed income space which pushed funds to equities in search of higher return and was extended to the first month of 2021, maintaining a three-year change pattern in January. Trading in January closed positive, thereby changing what had come to be known as the January effects when the NSE composite index closes negative.
As such, in January 2021, the index recorded a robust 5.3% gain, which was, however, reversed in February on-sell pressure, amidst profit taking and price corrections that were triggered by rising yield in Treasury bills and bond market instruments. As a result, the benchmark index lost 5.6%, wiping out the gains recorded in January, thereby ushering in the first correction after the 2020 rally.
The 2020 full-year corporate earnings reporting season that comes with strong momentum and mixed sentiments helped to reduce sell pressure with dividend news and payouts, with the numbers released so far showing the resilience of corporate Nigeria. This is noteworthy, given the effects of the COVID=19 pandemic on the economy which led to the nation’s second recession in less than five years, despite which listed companies posted positive numbers, notwithstanding the mixed, flat, or even marginal decline in their numbers.
The profit-taking and rising yields in the fixed income market coincided to pulldown the NSE’s All-Share index and trigger sectoral rotation, thereby creating buy opportunities for discerning investors and technically inclined traders. The market resisted a break down of the 38,300 basis-point strong support in March when the index lost 1.9%.
The downtrend occurred on the back of pullbacks and flat volume when compared to transactions recorded in the last quarter of 2020, amid the influx of numbers to the market with mixed numbers and dividend news that translated to better yields.
During the period also, there were announcements of breakthroughs in the Coronavirus vaccines, a situation expected to drive oil prices at the international market, propelling global and domestic economic recovery. The expected Q1 numbers will give further insights, being a leading index or parameter that tells what is happening in the economy and where it is headed.
In the midst of this also was the news of an outbreak of deadlier variants of the COVID-19 pandemic in its second wave; made worse by the rising insecurity across the country with kidnappings across the country and mass abduction, especially of school children becoming a daily occurrence. Add this to the incidences of policy mismatch between the fiscal and monetary authorities, then you have a very unfriendly situation that threatens recovery in an economy that is exiting recession, at 0.11% growth, compared to Q3’s 3.62% contraction.
The seeming economic recovery and the rise of crude oil above the nation’s $45 budget benchmark are positive signs for the equity market, going forward, despite the ongoing portfolio realignments, due to improving yields in Treasury Bills and Bonds. With the expected Q1 earnings reports and rising inflation in the new quarter, reversal is underway to halt the two selling sentiments as dividend yields of blue-chip and growth stocks become better and more attractive.
The key performance index closed activities for the quarter on a negative note, dipping on the last trading day of the quarter, suggesting a trend continuation with the market yet to respond to the mixed numbers and corporate actions so far released, due to liquidity.
As noted earlier, the audited scorecards of various listed companies released so far have given insights into what we should expect from different sectors and individual stocks. The possibility of prices reversing is high, amidst portfolio reshuffling on the strength of the 2020 full-year numbers and expected Q1 earnings reports in April.
In the 62 trading sessions of the quarter, the NSE All-Share index recorded losses in 34, and was upin 28, resulting in a cumulative 3.04% loss, which happened, owing to price corrections, despite the recovery move on strong fundamentals, and high dividend yields that attracted more inflows to the market. This was also due to impressive corporate earnings and payouts, regardless of the economic recession in 2020.
Specifically, during the first quarter of 2021, the NSEASI lost a total of 1,225.59 basis points, closing at 39.045.13bps, compared to the 40,270.72bps at which it opened, after touching a low of 38,309.62bps and 42,472.56bps highs. There was a high buying pressure, followed by selloffs and mixed sentiment within the period, which impacted negatively on the index and stock prices, pushing them down to break down various support levels and psychological lines.
Market capitalization, during the period, fell by N628bn, closing at N20.43tr, from N21.06tr, representing a 3.04% value loss also. The quarter’s total ‘sell’ volume was 71%, leaving the ‘buy’ position at 29%, halting the previous three-quarters of bull transition, while the volume index for the period was 0.01.
Transaction volume for the period was flat at29.46bn shares, the same as was recorded in the preceding quarter, just as market breadth for the period was marginally negative with decliners outnumbering advancers in the ratio of 60:52. It therefore short-lived the preceding three-quarters of the upmarket as liquidity flowed out of equity assets due to factors mentioned above, a situation that may reverse in Q2 as the earnings season extends to April in expectation of 2021 Q1 numbers.
Mixed Sectorial Performance
Performance indexes across the sectors and market were mixed, as NSEOil/Gas, NSE Insurance, NSE Growth index, and NSE Main Board closed the quarter17.54%,7.94%, 3.82%, and 0.89% higher respectively. As shown by the chart below, the NSE Industrial Goods, Premium, Banking, Consumer Goods, NSE 30, NSE 50, and Pension indexes depressed the market the most during the quarter, worse than the general market. The NSE Industrial goods and Premium index lost a total of 7.52% and 6.58% respectively, driven by profit-taking and selloffs in highly capitalized stocks.
Others are represented in the chart below, revealing investors’ mixed sentiment and indecision among traders, as the market’s Price-To-Earnings Ratio closed below 15x.
Source: NSE Investdata Research
Best And Worst Performing Stocks For Q1
The best-performing stocks for the quarter under review were predominantly low and medium caps across the Oil/Gas, Services, consumer goods, and insurance sectors, led by Lasaco Assurance, which gained 268.57% as a result of its share reconstruction. It was followed by Champion Breweries’161.65%; and the 75.51% notch by Morison Industry. Guinness Nigeriaclimbed66.37% up, on market forces and seeming improvement in its earnings ahead of Q3 numbers; just as Mutual Benefits Assurance chalked62%; among others.
Technical View
The NSE’s index action for the month and quarter were bearish, halting the V-shape recovery trend, as the index pulled back to break down some strong support levels of 42.000, 41,000, and 40,000 marks in the midst of audited financial reports season. At the same time, it is trading above its 50-Day Moving Average on the monthly and quarterly chart, despite the mixed sentiments and high traded volume.
The trading patterns and momentum going forward is likely to change, as investors react to the audited full-year numbers, portfolio rebalancing, and repositioning, with dividend news and recovery oil prices.
Market technicals for the quarter were mixed, a situation expected to change in the new month and quarter, that is the buying month and quarter as revealed by an analysis of two-decades-old data by invest data Research. This is the situation, especially now that the trading environment is changing toward sector rotation to pinpoint hot stocks in different sectors with high upside potential and positive price actions supported by strong consumption to drive explosive sales in 2021.
Market Outlook
The mixed trend is expected to continue in the new month and quarter, even as the market outlook remains mixed and dicey due to rising inflation, mismatch in policies, and mixed sentiments, even as yields in the fixed income market keep looking up. We see the anticipated economic data and Q1 numbers in the new month strengthening recovery, despite the rising inflation, insecurity, and the second wave of coronavirus. However, the wave will further boost Nigeria’s healthcare sector, due to the commitments of the government and CBN to enhance public health.
Investors should at this point avoid greed and instead ensure that their decisions are guided by predetermined investment goals and exit strategies, even as the healthy inflow of funds into the equity assets due to the prevailing increase in negative real returns in money and bond market due to high inflation rate. This is likely to continue, with government planning to raise fuel price above N200 per literary moment from now, given that the high cost of energy and pump price of fuel have been the major drivers of high production cost and living, coupled with rising insecurity in the nation today. The MPC meeting for March has doused fear of funds leaving the market in the interim, as the CBN wants cheap funds to flow into the market to support the economic recovery, as the high cost of borrowing may also threaten the government's ability to finance its deficit budget for 2021, as well as capacity to create jobs as the unemployment rate in Nigerian hit its highest in history.
Again, the current breakdown of support levels offers traders opportunities to position for the short-term, while investors should target fundamentally sound, and dividend-paying stocks for possible dividend income and capital growth now that many companies had made available their corporate actions to the market.
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Ambrose Omordion
CRO|Investdata Consulting Ltd
info@investdataonline.com
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Tel: 08028164085, 08032055467
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