Mixed Indicators Ahead, As Investors Expect Data To Confirm State Of Economy
Market Roundup for May 2021
The month of May was a red one for Nigeria’s equity market, reversing the previous month’s gain, after the benchmark index caved in to sell pressure, amidst selloffs, profit taking and price corrections.
There was even the challenge of indecision among traders despite the better than expected corporate earnings in the midst of weak economic data and rising insecurity across the country, which has forced many countries to issue travel advisories for Nigeria.
The low traded volume and mixed sentiment during the month of May is a reflection of inactivity among institutional investors owing to the recovery in fixed income yields currently diverting funds from the stock market.
Given the outcome of the Monetary Policy Committee meeting at the of May, prevailing economic data and corporate earnings that are looking up, we envisage a reversal in trend as March year end accounts have started to hit the market, just as half year interim dividend/ earnings season is underway, besides the fact that oil price is trading around $70 per barrel.
Investdata Research projects that the Nigerian equity market’s benchmark All Share index would close the year 2021 on a positive note, despite the ongoing mix trend, because being a vaccine year with breakthroughs in Coronavirus pandemic. This is supporting economic recovery across different climates, as well as oil prices in the international market. The negative performance in the month is an opportunity for discerning investors and traders to position and build wealth.
Since investment or trade is against expectations, let your investment objectives guild your entry and exit decisions, just, as the market continues its mixed trend and performance into the last month of Q2 and ahead of the half year earnings season. We are still seeing big trends setting up over the next few weeks and months. The way certain assets and sectors are reacting right now may lead many investors to believe a breakout trend is setting up, which could be the case. The month of June has recorded mixed trends in the last five years, with three closing up and two down.
But, behind the scenes, sectors are starting to show signs of a broader recovery patterns that may surprise those who are not paying enough attention. Do not allow the oscillation to push you out of good position but take advantage of any pullback.
The candlestick pattern that represents the month’s trading activities fully consumed the pattern in the month of April, while technically forming a bearish gulf and at the same time a hammer candle that supports a reversal and uptrend. This is therefore signalingthe beginning of a short bull-run in the new month, depending on market forces
The NGX recorded 18 trading sessions during the month under review with 12 trading days of down market, and six of up market during the period, closing lower with the composite NGX All-Share index oscillating. The key performance index lost 1,396.54 basis points during the month, closing at 38,437.88bp after breaking down the strong support levels of 39,000bps and 38,646.43bps, from its 39,834.42bp opening level, representing 3.51% decline in the period.
The buying and selling volume of total transactions for the month were 38% and 62% respectively, halting the previous months’ up market, as volume index for the period stood at 0.66, while market capitalisation recorded N812bn loss at N20.04tr, from an opening value of N20.85tr, representing 3.90% loss also. The market had a mixed sentiments and indecision based on Q1 scorecards and economic data released, as investors and analysts continue to interpret the numbers. The month’s traded volume was down by 16.4% at 4.54 billion shares, from 5.43bn units in the previous month.
The NGX All-Share index’s year-to-date loss position stood at 4.55%, just as market capitalisation adjusted down to N1.02tr representing 4.85% loss YTD from the opening value.
The market breathe in the month of May was slightly negative as decliners outpaced advancers in the ratio of 53:50 to short-live the bull run in the month of April, reflecting the selloffs in high cap stocks, profit booking in medium and low priced equities. Also there was indecision among players, despite Q1 earnings reports were impressive and higher than market expectations, especially from sectors as Healthcare, Agro-Business, Industrial goods, Telecommunication, Energy, few from Banking and consumer goods. This is an indication that the current divergence in company earnings and share prices will not last.
Performance indexes across the sectors were mixed as shown in the chart below, NGX Industrial goods, NGX 30 and Premium stocks dragged the market down in the period under review, after losing 3.47%, 2.07% and 0.66% respectively to impact negatively on the benchmark NGX All Share Index.
These was attributed to price adjustment for dividend during the period, selloffs in one of the two sectors that control NGXASI and profit taking among the blue chip stocks. Despite the impressive numbers emanating from different companies and sectors to inspired discerning investors to rethink and position early ahead of year end, amidst the relatively low Price-To-Earnings attraction in the market. Other indexes that closed green during the month were: NGX Oil/Gas, Insurance, Banking, Pension and Consumer goods.
Source: NGX, Investdata Research
Best Performing Stocks for May
Low priced stocks, especially insurance companies topped the month’s best performers, as Consolidate Hallmark Insurance, Royal Exchange Assurance, and Regency Insurance continue to enjoy low price attractions and also benefit from recapitalization activities in its sector, in addition to the improved earnings from these companies, while the market still expects Q1 2021 results from others. The stocks closed the month higher, after gaining 69.23%, 37.74% and 36.36% on their opening prices for the month respectively. It was followed by Eterna, which chalked 26.67%; while Vitafoam grabbed 22.22%; and Union Bank of Nigeria, 21.43%. See the table below.
Source: NGX, Investdata Research
Worst Performing Stocks for May
The top losers in the month were insurance stocks also, led by Linkage Assurance, which shed 29.41%, on the back of price adjustment for dividend and bonus, just as market forces and mixed sentiment dragged SUNU Assurance down by 20.34%. Investors seem to be reacting to the company’s failure to release its numbers. BOC GAS declined by 18.96%; Academy Press, 17.50%; and NPF Microfinance, 10.22% on the back of market reaction to proposed primary activities.
Source: NGX, Investdata Research
Technical View on Monthly Time Frame
The NGX index action resisted further decline technically in the month of May, despite forming a bearish gulf, and at the same time bullish hammer candlestick that support reversal and uptrend depending on market forces in the new month. The expected buying interest and positive sentiment for portfolio adjustment and repositioning for Q2 numbers are likely to continue. The inflow to equity assets as revealed by money flow index supported the seeming reversal on smart money reposition their portfolios.
Where To Invest And Expectations For the Rest of Q2
The global economy and market remain mixed as vaccine driven economic recovery across climates continue, with the World Bank recently upgrading its economic growth outlook based on the ongoing vaccination and government polices at different level.
Back home, the seeming economic recovery and mixed indicators are likely to continue in the new month as we expect more economic data and developments to confirm the real state of the nation’s economy as implementation of the 2021 national budget continues. This will be helped by the CBN’s continued intervention in critical sectors to boost productivity needed to create employment and support recovery. Reasons for this are not far-fetched, given the impact of Covid 19 and insecurity in the system.
In June, we expect the release of May consumer price index (CPI) by the National Bureau of Statistics (NBS) that would likely show that inflation is rising further; just as the CBN’s Purchasing Managers Index (PMI) for May is equally expected in this June. The nation’s GDP is still on a weak recovery mode to reflect the true state of the economy.
As corporate earnings reporting season has been extended to May and June for the few March year-end accounts, the fundamentals of these earnings and dividend declaration will support the ongoing positive outlook in market. Also, we note that many high cap stocks have this month as their qualification and mark down dates, a situation that will keep the market oscillating, while at the same supporting recovery.
Traders and investors who understand the importance of combining fundaments and technical analysis in making investment decisions in the stock market should take this opportunity to position in some sectors for medium and short-term gains, especially the banking, telecom, Industrial, agribusiness and consumer goods after a carefully study of recent numbers being made available to the market.
What to expect in May and June
Release of more quarterly and full year earnings. Earnings from blue-chip companies may strengthen market fundamentals in May.
Continuation of oscillating trend of equity prices as a result of repositioning of portfolio along the line of positive numbers and profit taking. Also the second half of this year will likely be dominated by positive sentiment.
Market outlook for May is mixed but remain dicey, in line with popular saying that traders always “sell in May and come back in October,” which may not be applicable in the current trend of our market that has changed in the last five years. In the Nigerian market, the month of May has closed positively in 13 times over the 20 years. But with the impressive Q1 numbers so far; the oil price oscillating above $64 per barrel in the global market and the CBN intervening in the FX market to create stability.
The sustained low valuation in the market may trigger high demand for stocks as players realign their portfolios. However, there is need to invest wisely, using bids, offers and volume when taking decisions as a trader.
Managing risks and protecting capital at this point is very important, so you will determine when to buy or sell, by watching the stocks and the market, using technical analysis. Look for investdata daily sentiment timing report and home study video packs
Let numbers released by the companies guide your decision and time to stay in that position.
Full-year earnings reports of March year-end companies will start hitting the market this month until June.
As the market phase is changing, it is time to combine fundamentals and technical tools to take decision by knowing the support and resistant levels to reposition or exit any position. You must know the cycle it, or particular stocks therein are to successfully manage your trading and investment risk. For stocks that should be on your shopping list to buy in these seasonal changes as the year unfolds, sign up to INVESTDATA BUY AND SELL signal setup by calling 08032055467.
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