Investors Realign Portfolios On NGX Ahead Of Major Economic Data, Q1 Earnings
Market Update for April 26
Trading for last week of April, which is the first month of the second quarter of 2021 started on the Nigerian Stock Exchange (NSE) positive, despite being highly volatile, with a reduced gaining momentum, extending previous week’s bull-run and dominance. This is just as the market entered the peak of the Q1 earnings reporting season in anticipation of major earnings from the banking sector, as well as high cap stocks capable of influencing market performance and movement.
The high volume traded at the end of the seven straight trading sessions of bull transition calls for caution, because it may signal profit taking that needs confirmation during Tuesday’s session, as buying interests remain high as revealed by the positive market breadth. Note that recent pullbacks have made the valuation of fundamentally sound stocks attractive, as many now offer a higher margin of safety. This is especially true of companies with high potentials to grow their numbers in this current year, an insight of which we will in their first quarter outings.
The positive sentiments and vibrations around the stock market continued as revealed by money flow index and the sentiment report, despite the mixed Q1 numbers released by Ecobank Transnational Incorporated and BOC Gases. Specifically, the result from ETI was above market expectation, as shown by the rise in top and bottom lines by 10% and 25% respectively, while that of BOC Gases showed a decline in both indicators to signal a slow start.
We see the ongoing Q1 earnings season influencing the market, considering the undervalued state of some stocks with potentials to outperform inflation, as well as yields in Treasury Bills and government bonds. This projection is based on the level of funds flowing into the equity space at this time and knowing that capital gains and dividend rewards associated with stock market investing and trading are better hedges against the galloping inflation.
Investdata, therefore, expects equity market players to invest wisely, guided by their own set investment objectives, especially entry and exit strategies necessary to survive and profit from the expected new trend.
As such, should the Q1 earnings reports and corporate actions of the stocks you have positioned ahead fail to impact and support this recovery, a big rotation in sector trends should also guide you, going into the future. There other factors such as this third wave of the COVID-19 pandemic blowing across the globe, as well as the oscillating oil prices and profit-taking, that may slow down the current recovery, because the market offers short-term trading opportunities.
Meanwhile, Monday’s trading opened on the downside in the early trading hours, before rebounding and oscillated on increased buying sentiments and profit taking in low priced equities and blue chip stocks. This pushed the benchmark NGX All-Share index to an intraday high of 39,332.82 basis points, from its lows of 39,256.36bps, before from its lows of 39,256.36bps, and berthing above its opening figure at 39,318.32bps.
The day’s market technicals were positive and strong, with volume traded higher than previous day’s in the midst of breadth favouring the bulls on a high buying sentiment as revealed by Investdata’s Sentiments Report showing 83% ‘buy’ volume and 17% sell position. Total transaction volume index stood at 1.02 points, just as momentum behind the day’s performance was relatively strong. Money Flow Index was looking up to 60.86pts, from the previous day’s 53.74pts, indicating that funds entered the market.
Index and Market Caps
Thecomposite NGXASI, at the close of the day trading, inched up by 16.70ps, closing at 39,318.52bps after opening at 39,301.82bps, representing a 0.04% up, just as market capitalization rose by N8.73bn, closing at N20.58tr, from an opening value of N20.57tr, which also represented 0.04% value gain.
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Monday’s marginal upturn resulted in buying interests in in Lafarge Africa, Nigerian Breweries, Access Bank, Guaranty Trust Bank, Africa Prudential, United Capital, May and Baker, Transcorp and Livestock, among others. This impacted mildly on Year-To-Date loss, reducing it to 2.36%, just as market capitalization loss dropped to N589.10bn, or 2.28% below its opening value for the year.
Mixed Sector Indices
Performance indexes across the sectors were mixed, as the NSE Insurance and Industrial Goodsclosed higher by 4.30% and 1.36% respectively, while the NSE Energy index led the decliners after losing 0.91%, followed by Banking and Consumer goods with 0.25% and 0.05% lower.
Market breadth was positive, as advancers outnumbered decliners in the ratio of 25:17; with transactions in volume and value terms were mixed after players traded 329.74m shares worth N2.06bn, compared to the previous day’s 287.04m units valued at N3.04bn. Volume was boosted by trades in Transcorp, FBNH, AXA Mansard Insurance, Access Bank and Guaranty Trust Bank.
Transcorp and Linkage Assurance were the best performing stocks, gaining 10% each, closing at same N0.88 per share on improving earnings and dividend reward. On the flip side, Conoil and Ikeja Hotel lost 9.33% and 9.09% respectively, closing at N17.00 and N1.00per share, on profit taking and selloffs
Market Outlook
We expect the mixed and positive trend to continue with investors reacting to the Q1 corporate earnings expected to hit the market this week, besides profit taking, even in the face of rising virus cases across the globe and high yields in fixed income space. There are also to be expected, continued portfolio realignments ahead of economic data like the 2021Q1 GDP report, and Purchasing Managers’ Index, among others.
Also, the market has moved out of its trading range, waiting to breakout the next resistance level of 39,412.15bps, while trading above the 14 and 20-Day Moving Average. Note that the market may discount the prospects of high cap companies and some blue chip stocks, ahead of earnings season.
However, the pullbacks offer bargain hunters and income investors fresh opportunities to reposition in high dividend yields and undervalued stocks, while looking out for quarterly numbers that would 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 2020 full numbers and expected 2021 Q1 earnings reports, until the next MPC meeting in May.
The NSE’s index action and indicators are heading in the same direction on a low traded volume and positive buying sentiments in the midst of rising yield in bond and TB.
Also, 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@investdata.com.ng
ambrose.o@investdataonline.com
ambroseconsultants@yahoo.com
Tel: 08028164085, 08032055467
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