Investors Await Confirmation Of NGX Index Mild Recovery, Low Volume

Market Update for June 2

Midweek’s trading on the nation’s equity market was mixed and volatile, with session closing slightly higher, thereby reversing previous day’s loss, as the composite index continued its see-saw movement on a low traded volume and amidst negative sentiments.

Despite the mixed performance on the exchange, the NGX index action broke out the recent resistance level of 38,457.18 on seeming buying interests in blue-chips that pushed the market up after Dangote Cement recorded 1.4% price appreciation. Volume analysis and price pattern for the session revealed indecision among the market players as they look forward to more economic data and positive information in the form of policy statements.

The undervalued state of the market and rising dividend yields have made equities more attractive, with most of the low-priced stocks outperforming the prevailing inflation rate, making equity space an irresistible hedge for investors against inflation. The low Price/Earnings ratio of the market, owing to the stronger corporate numbers, ahead of the half-year earnings season and interim dividend payments, presents huge opportunities for discerning investors and traders to build wealth.

It is interesting to note that sector rotation will continue in June, as sectors and companies benefiting from the inflationary pressure and rising yields may likely post better numbers. The trading pattern we saw in the previous month may continue, given that many companies have June as mark-down and payment dates, end of the quarter for fund managers window dressing, and repositioning of portfolios ahead of Q2 numbers and others.

This calls for a change in investor perception and trading strategies to stay ahead of the market, thereby ensuring that you are among the few who make money from equities’ trading, which is possible through regular learning of technical analysis and candlestick pattern. 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.

Meanwhile, Wednesday’s trading opened slightly on the upside and oscillated throughout the session on positioning and profit taking that pushed the benchmark index to an intraday high of 38,488.30 basis points, from its lows of 38,370.69bps, before closing slightly above its opening level at 38,482.52bps.

Midweek’s market technicals were positive, but weak as volume traded was lower than previous day’s in the midst of breadth favoring the bears on high buying sentiment as revealed by Investdata’s Sentiments Report showing 95% ‘buy’ volume and 5% sell position. Total transaction volume index stood at 0.59 points, just as the energy behind the day’s performance was relatively weak, even as Money Flow Index looked down to 33.89pts, from the previous day’s 37.01pts, indicating that funds left the market, despite the up market.

Index and Market Caps

The NGX All Share index at the end of trading gained 68.15bps, closing at 38,482.52bps from an opening figure of 38,414.37bps representing a 0.18% up, just as market capitalization rose  by N35.52bn, closing at N20.06tr from the opening value of N20.02tr, representing a 0.18% appreciation in value.

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Midweek’s upturn resulted from buying interest in Dangote Cement, Zenith Bank, UBA, Unilever, Africa Prudential, and Honeywell, among others. This impacted mildly on Year-To-Date loss, reducing it to 4.44%, while the drop in market capitalization YTD stood at N1.01tr, representing a 4.83% drop below its opening value for the year.

Mixed Sector Indices

Performance indexes across sectors were mixed, as the NGX Insurance, Industrial goods and Banking closed 0.76%, 0.50% and 0.02% higher respectively, while the NGX Consumer Goods led the decliners after shedding 0.16% followed by Oil/Gas that recorded 0.05% lower.

Market breadth turned negative, as decliners outpaced advancers in the ratio of 20:15; while transactions in volume and value terms dropped, as stockbrokers exchanged 156.91m shares worth N1.33bn, from the previous day 274.85m units valued at N2.63bn. Volume was driven by trades in Japaul Gold, FBNH, Transcorp, UACN and Fidelity Bank

University Press and Regency Insurance were the best performing stocks, gaining 9.38% and 8.16%, closing at N1.40 and N0.53 per share respectively on full year earnings expectation and market forces. On the flipside, Computer Warehouse Group and Ikeja Hotel lost 9.66% and 9.09% respectively, closing at N1.87 and N1.00 per share, on selloffs.

Market Outlook

We expect a mixed trend and slowdown in profit taking in the midst of positive earnings and falling prices in the face of the global economic and market recovery across 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 remain 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.

https://investdata.com.ng/investors-await-confirmation-of-ngx-index-mild-recovery-low-volume/