Mixed Trend Still, As Investors Position On Q1 Earnings Releases, Fixed Income Yields
Market Update for the Week Ended April 23 and Outlook for April 26-30
It was a bullish but volatile week on the Nigerian Exchange (NGX), as investors renewed their buying interest across sectors, halting three consecutive weeks of decline, with the benchmark All Share index’s action resisted further decline for two weeks. It formed sideways, or ranging market in the midst of Q1 corporate earnings and economic data releases.
The market maintained positive sentiment and momentum on mixed Q1 numbers released so far and low price attraction of fundamentally sound equities with strong potentials to grow their earnings performance this year, as shown by recent scorecards. These, as well as unfolding events in the economy are offering insights as to which sectors and industries to look for early positioning, no minding the rise in fixed income yields, oscillating oil prices, high national debt profile and declining reserve.
The lingering volatility in the market at this time is a sign that investor confidence is gradually return as more companies release their quarterly scorecards and give the outlook for the new financial year, besides hinting of the economic performance for Q1. The positive mood of the market and NGX ASI index action uptrend is shown by improved transactions and positive breadth, regardless of the low traded volume.
We see the ongoing Q1 earnings season influencing the market, considering the undervalued state of some stocks with potential to outperform inflation, as well as yields in Treasury Bills and bonds. This is given the capital gains and dividend rewards associated with stock market investing and trading, following Investdata expects equity market players to invest wisely, guided by set investment objectives, especially entry and exit strategies necessary to survive and profit from the expected new trend.
Investors and traders should at this point must, target what they consider the right sectors and stocks for higher capital gains and yields and in the process stay above inflation in the short-term. It is for this reason that the equity market remains the best investment hedge, regardless of the rising yields in the fixed income market.
Movement Of NSEASI
The nation’s equity market witnessed a bullish dominance for five trading sessions of the week under review, on positive sentiments and strong buying interests, thereby reversing the preceding three successive weeks of negative outing. The low price attractions of many undervalued stocks and seeming improvement in Q1 2021 earnings reports impacted positively on the benchmark NGXASI which closed the period higher.
Trading for the week opened on a positive note, extending the previous session’s uptrend with a 0.07% gain, a situation that was sustained throughout the week on buying interests in medium, high cap equities and blue-chip stocks across the sectors. This trend continued on Tuesday and at midweek with the NGX index closing 0.43% and 0.29% higher respectively, after which it slowed down on Thursday to 0.01% up. Thereafter, it rebounded powerfully on Friday when the composite index gained 0.43% on strong buying sentiments among the medium cap and low priced equities. This raised the week’s total gain to 1.27%, from the previous 0.15% decline.
Specifically, the NGXASI gained 493.81 basis points from the 38,808.01bps opening level, while touching intra-week high of 39,303,64bps and low of 38,806.28bps, before closing the week at 39,301.82 on a positive sentiments and buying interest inall classes of stocks. Also, market capitalization rose by N26bn, closing at N20.57tr from the previous week’s N20.31tr.
The week advancers table was dominated by medium and low priced stocks as investors reposition their portfolios and react to Q1 earnings released so far. As they discount expectations from high cap equities, amid the markdown activities in Fidelity Bank, Sterling Bank, Total Nigeria, FBN Holdings, AXA Mansard Insurance and NASCON, Also, trading and price patterns reveal the presence of bargain hunters and accumulation in some stocks as their Q1 numbers give insight and direction of what should be expected in the new financial year.
The week’s positive breadth was due to advancers outnumbering decliners in the ratio of 39:24 on a buying sentiment and relatively weak momentum as Money Flow Index read 40.41bps, down from 44.20 points in the previous week. During the week also, NPF Microfinance and Unity Bank released their full-year earnings reports, with the directors of NPF Microfinance recommending 20 kobo dividend per share. Also, the Q1 numbers of UBA, Unilever, Guaranty Trust Bank, Transcorp, Africa Prudential, National Salt and Stanbic IBTC, were released.
NSEASI WEEKLY CHART MOVEMENT
Recovery by the NGXASI recovery move and bullish trend during week were attributed to post-March 2021 inflation rate of 18.17% interpretation on investment and Q1 earnings reports that started hitting the market with impressive numbers beyond market expectations and rising fixed income yields. There is also an increased volatility rate in the midst of changing price patterns and trading environment, while investors continue accumulating positions in undervalued and growth stocks as more 2021Q1 reports are expected.
Also, we note that the index has broken out the first resistance level of 39,291.03 and seven-Day Moving Average to test 20-DMA on a weekly chart to strongly support uptrend on a low traded volume and buying sentiments. This is likely to continue, depending on how investors react to the Q1 numbers in this last trading week of the month.
Nevertheless, we see the market maintaining this uptrend, especially as investors look to economic data and corporate earnings, just as the index continues trading above the 39,000 basis points.
The strong resistance level to watch out for on the NGX is within the 39,412.19bps and 39,578.12bps, and a breakoutof these levels will attract new positioning by traders. This is happening at a time crude oil is trading above $60 per barrel at the international market, while the Covid-19 vaccination is on a high gear at the global and domestic levels.
However, we envisage a mixed outlook for the rest of Q2, while not ruling out profit booking and repositioning of portfolios especially after the market recorded a sharp uptrend in 2020.
Our expectation of a mixed outlook is hinged on such factors as the possible impact of corporate earnings, ongoing vaccination, mismatch of monetary and fiscal policies, implementation of the 2021 capital budget, as well as implications of oil prices oscillating on the nation’s revenue. We note too, that impact of the Money Flow Index and MACD are bearish on a weekly chart, but bullish on daily time frame.
Bullish Sectoral Indices
Performance indexes across the sectors were positive and closed higher, led by the NSE Banking index which chalked 4.82%, followed by Consumer Goods, Industrial goods, Insurance and Energy that closed 1.05%, 0.50%, 0.40% and 0.29% higher respectively.
The general market’s outlook remains mixed in the short and long term following which investors should take short and medium-term positions, while diversifying their portfolios along long-term trades to protect capital. This, they can do, by considering sectors with high upside potentials on the strength of earnings and policy influence.
The recent market recovery or retracement calls for portfolio adjustments and realignments, as unaudited numbers from some companies and sectors will expectedly beat expectations and influence themarket, given the vaccine breakthrough and its administration to drive global and domestic economic recovery, as revealed by the macroeconomic indices.
Transactions in volume and value terms were up by 26.98% and 291.64% respectively, as investors exchanged 1.6bn shares worth N42.14bn, compared to the previous week’s 1.26bn units valued at N10.76bn. Volume was driven by trades in Financial Services, ICT and the Conglomerates sectors, particularly Fidelity Bank, MTNN, Guaranty Trust Bank, Zenith Bank and Transcorp.
PZ Cussons and University Press were the best performing stocks for the week, gaining 21.11% and 19.63% respectively, and closing at N5.45 and N1.28 each on market forces and earnings expectations. On the other hand, FTN Cocoa and Portland Pants lost 22% and 18.09% respectively, at N0.39and N2.40 per share on profit taking and selloffs.
Market Outlook
We expect the mixed trend to continue as players react to impressive earnings and profit taking in expectation of more Q1 corporate earnings to hit the market in the face of rising fixed income market yields. Also, the recovery offers resistance breakout traders and investorsanother opportunity to reposition in value and underpriced growth stocks, while some companies with march year end account release their unaudited and audited full-year numbers to support recovery in the new month. 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 oscillating 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 galloping inflation.
However, the strong and faster recovery may continue, depending on market forces, going forward, as propelled by expected Q1 earnings reports, until the next MPC meeting in May.
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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