Reversal Ahead, Amid Profit-Taking Slowdown, Selloffs, MPC Meeting Outcome

 

Market Update for May 24

Activities on the Nigerian Exchange on Monday was mixed and volatile, as the week opened on a negative note, thereby extending the previous week’s loss on mixed sentiments, amidst the divergence playing out even as the stronger earnings and weakening market. These indicate a better prospect for the equity market in the nearest future, considering the performance by companies a year ago and the numbers posted by them so far in 2021. 

The better-than-expected earnings being witnessed are likely to continue in Q2 and Q3, influencing share prices positively due to the prevailing low Price to Earnings Ratio and the resultant high margin safety. Such expected improvements in corporate earnings will support higher dividend payouts and yields that will make the stock market an attractive window to hedge against inflation.

The seeming positive and weak economic data revealed slow recovery that call for well-articulated policies to boost economic recovery and activities that will drive national productivity and output.

Meanwhile, all eyes are on the outcome of the Monetary Policy Committee meeting to be announced Tuesday, with analysts expecting that rate will likely remain unchanged despite the deceptive slowdown in consumer price index for the month of April, and weak GDP growth of 0.51% in Q1 GDP 2021. This is given that the benchmark Monetary Policy Rate is currently disconnected from the rate environment, with yields on Treasury Bills and FGN bonds reflecting actual interest rate dynamics.

The current changing price pattern and trading environment call for change in investor perception and trading strategies to stay ahead of the market and be among the few who make money from equities’ trading as they up their games through regular learning. This is the advantage Investdata’s Comprehensive Stock Market trading videos and literature provides, as it covers fundamental and technical analyses that help you make effective and profitable trades.  

Market players should, therefore, wait to confirm the new trend by focusing on the sectors with strong potential to grow their earnings performance and that have high upside price rally outlook. Here investors should target companies with earnings growth, quality and value that can match Investdata’s Earnings Gauges.

Monday’s trading opened on the upside and oscillated throughout the session on the strength of position and profit taking among the blue-chip stocks that pushed the NGX All-Share index to an intraday low of 38,287.53 basis points, from its highs of 38,382.35bps. Thereafter, it closed below the day’s opening level at 38,287.53bps.

Market technicals were weak and mixed, as volume traded was lower than the previous day in the midst of slight positive breadth and negative sentiment as revealed by Investdata’s Sentiments Report showing 100% ‘sell’ volume and 0%, watch position. Total transaction volume index stood at 53 points, just as the energy behind the day’s performance was relatively weak, as Money Flow Index looked up, reading 46.66pts, from the previous day’s 48.04pts, indicating that funds left the market.

Index and Market Caps

At the close of Monday’s trading the composite NGXASI shed 36.49bps, closing at 38,287.58bps from an opening figure of 38,324.07as representing a 0.10% drop, just as market capitalization fell by N19bn, closing at N19.96trillion, also representing a 0.10% in value loss.

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Monday’s downturn resulted from profit taking in Guaranty Trust Bank, UBA, Access Bank, ETI, Eterna, Wema Bank, Enamelware, AIICO, and Mutual Benefit, among others. This impacted negatively on Year-To-Date loss, increasing it to 4.92%, while the drop in market capitalization YTD increased to N1.63tr, representing a 6.30% drop below its opening value for the year.

Mixed Sector Indices

Performance indexes across the sectors were mixed, as the NGX Consumer Goods, Oil/Gas and Industrial goods closed 0.58%, 0.21% and 0.09% higher respectively, while NGX Insurance led the decliners after losing 0.75%, followed by Banking with 0.68% lower.

Market breadth turned slightly positive, as advancers outnumbered decliners in the ratio of 18:17; just as activities in volume and value terms were dropped by 19% and 44% respectively, as players exchanged to 141.15m shares worth N1.09bn, as against the previous day’s 174.3m units valued at N1.95bn. Trading was boosted by UACN Property, of which Custodian Investment announced approval by the Securities & Exchange Commission (SEC) to acquire the stake of minority shareholders at 90 kobo per share (READ MORE). Other stocks that attracted investors’ attention during the session were FBNH,  Chams, Fidelity Bank, and  Zenith Bank.

Royal Exchange and Regency Insurance were the best performing stocks, gaining 9.68% and 8.82%, while closing at N0.68 and N0.37 per share respectively on market forces.  On the flipside, ABC Transport and Enamelware lost 9.76% and 9.75% respectively, closing at N0.37 and N16.20 per share, on profit taking.

Market Outlook

We expect a reversal, despite the ongoing profit taking and selloffs to slow down, in the midst of mixed sentiment and expected outcome of MPC meeting in the face of  rising infection rate of the novel coronavirus across the globe and the high yields in the fixed income market. We also expect the ongoing vaccination to support global and domestic economic recovery that will support the market and give direction. The banking sector and others remains attractive on the back of the prevailing low prices, despite the Q1 mixed numbers.

Also, the market just started a new downtrend as it trades below the 14 and 20-Day Moving Average. Note that the market may discount the political and insecurity challenges headlines, ahead of half-year earnings reports.

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 Q1 earnings reports and expected march full year audited accounts.

The NGX’s index action and indicators are heading in the same direction   on a low traded volume and mixed 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

https://investdata.com.ng/reversal-ahead-amid-profit-taking-slowdown-selloffs-mpc-meeting-outcome/