NGX Outlook Mixed, Amidst Short, Medium-term Portfolio Realignments

 

Market Update for the Week Ended June 25 and Outlook for June 28-July 2

Trading activities on the Nigerian Exchange in the last full trading week of June closed south on a mixed momentum, thereby extending the bear-run for the second consecutive week on a low traded volume and negative breadth, ahead of the half-year earnings reporting season now around the corner.

The changing price patterns and trading environment are pointers to the fact that the nation’s stock market is gradually coming out of the COVID-19 crisis and post-recession era to find direction amidst the weak economic recovery as the market moves into the second half of the year 2021.

Despite the breakthrough in vaccines that is driving economic recovery globally and oil prices at the international market, the nation’s equity market appears to be at the crossroad after sliding into negative territory shedding 6.49% year-to-date, after high cap stocks that lifted the market in 2020 suffered various degrees of losses due to sector rotation, profit taking and selloffs.

This situation has created new buying opportunities and risks in the second-half to shape the market forecast for the next six months of the year. 

Since the beginning of the year 2021, the market has oscillated as a result of many factors including the nation’s rising inflation and fixed market yields, improvements in corporate earnings, relatively high payout by companies, weak and mixed macroeconomic data. This is without forgetting the insecurity challenges that are befalling the nation

Technically, the NGX index action and many stocks are in their value area of resistance and support levels waiting for a breakout or down in the new quarter, depending on market forces of demand or supply, sentiments, earnings which is engine that drive price in the short or long run.

Movement Of NSEASI

The NGX action index was bearish, recording four session of down market, extending the bear transition for the second successive week, following losses in high priced stocks: Airtel Africa, Dangote Cement, MTNN, BUA Cement and Flour Mills that depressed the market.

Trading opened for the week on a negative note, losing 0.30% on Monday, a loss that was sustained on Tuesday, when the benchmark All-Share Index lost a significant 1.73%, before slowing down by midweek when it shed 0.22%.  This trend was halted on Thursday as composite index gained 0.44%, before Friday’s reversal as the index lost 0.78%, bringing the week’s total loss to 2.56%, much more than the previous week 1.30% decline.

Specifically, the All Share index shed 990.45basis points during the week, closing at 37,658.26bps from after opening at 38,648.91bps, touching an intra-week low of 37,544.28bps from its highs of 38,678.48bps on selloffs in high cap stocks, as well as profit booking among the medium and low priced equities. Within the period also, market capitalization dropped by N516.32bn, closing at N19.14tr, from previous week’s N20.13tr, which also represented a 2.56% depreciation in value.

The weekly advancers’ table was dominated by low cap stocks, in the midst of selloffs for portfolio repositioning and balancing ahead of quarter-end and earnings expectations as investors continue to study trend and digest emerging macroeconomic data.  Already, price actions reveal the presence of bargain hunters in the market, as situation that has impacted positively on sectorial indexes, with three sectors closing higher. Also the share price of BUA Cement was adjusted for dividend 0f N2.067 declared by its directors, while Guaranty Trust Bank was delisted from the NGX official list and replace Guaranty Trust Holding Company. During the week also, Interlinked Technologies Plc changed its name to Eunisell Interlinked Plc with EUNISELL as trading symbol.

The week’s negative outing reflected on its negative breadth, as decliners outnumbering advancers in the ratio of 38:33 on 83% selling volume and 17% buy position, just as Money Flow Index looked up, reading 55.00bps, from the previous week’s 50.37 points. This is an indication that funds continue flowing into the equity space despite the negative sentiment. 

NSEASI WEEKLY CHART MOVEMENT

The zigzag chart pattern formation and double bottom of the NGX Index action supports a continuation of trend and reversal, depending on market forces in this new week being the end of second half and beginning of Q3. The candlestick is yet to give any signal on the weekly chart.

This is happening at a time crude oil is selling above $73 per barrel at the international market after touching $75pb for the first time in four years, much more than the $45 benchmark price of the 2021 Nigerian national budget, as more economies reopen for business activities while the Covid-19 vaccination is on top gear at the global and domestic levels. There is also the impact of positive economic data from U.S and China that would support oil prices as demand increase.

Mixed Sectoral Indices

The sectorial performance indexes were mixed, as the NGX Banking, Consumer goods and Energy indexes rose by 0.92%, 0.57% and 0.12% respectively, while the NGX Industrialgoods led the decliners, after shedding 3.33%, followed by Insurance with 0.83% lower.

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, you should do, by considering sectors with high upside potentials on the strength of earnings and policy influence.

Transactions in volume and value terms improved, with players trading 1.01bn shares worth N10.33bn, compared to the previous week’s 981.15m units valued at N10.38bn, with volume driven by trades in Financial Services, Consumer goods and Conglomerates sectors, particularly Zenith Bank, Transcrop, Access Bank, Sterling Bank and Honeywell.

Veritas Kapital Assurance and Linkage Assurance were the best performing stocks for the week after gaining 18.18% each, closing at N0.26 and N0.65 per share on market forces and half year earnings expectation. On the other hand, CHI Plc and Royal Exchange lost 13.43% and 12.50% respectively, at N0.58 and N0.63per share, on profit taking.

Market Outlook

We expect a reversal on bargain hunting and accumulation with portfolio readjustments on the recent pullback while all eyes are on the month and quarter-end window dressing, ahead of full-year and Q2 corporate earnings, in the face of rising fixed income market yields.

Any breakout at this point offers new entry opportunities for traders and investors to reposition in value-laden underpriced growth stocks, while companies with March year-end accounts release their audited full-year numbers to support recovery. This is based on the fact that the rise in 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 ahead of interim dividend announcement. This is especially given that despite the seeming improvements, fixed income yield continues to offer negative real rate of return due to the galloping inflation.

However, the strong and faster recovery may continue, depending on market forces, going forward, as propelled by expected Q2 earnings reports, until the next MPC meeting in July.

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