NGX: Mixed Ahead, As Investors Go Defensive, Smart Money Position On Oscillation
Market Update for August 10
The nation’s equity market rebounded powerfully on Tuesday on the strength of investors’ buying interest in telecommunication and energy stocks amid the continued portfolio reshuffling and sectoral rotation ahead of the release of macroeconomic data like the July Consumer Price Index and Q2 GDP numbers. There is also the expected release of corporate earnings of interim dividend-paying banks: Zenith Bank, Access Bank, UBA, GTCO, and Stanbic IBTC.
Also on Tuesday, the NGX index joined counterparts across the globe to close higher on positive sentiments to reverse the previous negative outing, seemingly putting aside fears of the fast raging Delta Variant of the Coronavirus. The spread of the virus had slowed down as oil prices rebounded also in the international markets after a sharp decline on Monday due to increased cases of new infections and fear of future demand for the commodity.
Back in Nigeria, we recall that the half-year earnings season beat the market and analysts’ expectations to strengthen the market and company’s fundamentals that will help influence share prices in the short and long run. These numbers have given players an insight into how to invest or trade as sector rotation and portfolio repositioning persist, even as we warn ahead that good stocks in bad sectors will suffer setbacks in the ongoing repositioning by investors.
Except for the banks awaiting the Central Bank of Nigeria’s approval of their half-year earnings, the results so far published are impressive and better than expected, with most companies outperforming the numbers they released in the comparative period of 2020. These scorecards have a way of impacting the share prices of stocks as we saw in the Oil/Gas sector when Total and Conoil, among others, released their results and their share prices rose for three or four trading sessions. We also note that earnings from other sectors like building materials, telecommunication, construction, Healthcare, and services, while that of the banking industry came mixed while insurance was below market forecast and expectation. This is linked to the change in the sector’s valuation, considering the bearish trend in the bond market as yield continues to recover.
Technically, the NGX index action is set to break out a strong resistance level of 39,210.10 basis points and a bullish channel on a new uptrend with high traded volume as of the close of trading on Tuesday. This was after it formed a saucer chart pattern that supports a continuation of the trend, which we need to confirm as the market opens for the midweek’s trading because correction is possible at this point or level. Below is the daily chart:
Meanwhile, Tuesday’s trading opened on the upside in the morning and was sustained throughout the session on buying interests in high and medium cap stocks that pushed the composite All-Share index to an intraday high of 39,198.50bps, from its lows of 38,544.57bps, after which it closed above the opening level at 39, 176.62bps on slightly positive market breadth.
Market technicals were positive and strong as volume traded was higher than that of the previous sessions in the midst of breadth that favours the bulls on strong buying sentiments as revealed by Investdata’s Sentiment Report showing 97% ‘buy’ volume and 3% ‘sell’ position. Total transaction volume index stood at 0.95 points, just as the energy behind the day’s performance remained relatively strong as Money Flow Index read 56.93 points, from the previous day’s 59.77 points, an indication that funds left the market, despite closing higher.
Despite, the change in the market trends, players should keep their gaze on companies with strong earnings power that will support their future prices. Growth and value stocks should be the attraction in the market now, considering the strength of the numbers emanating from those companies and what is happening in the FX market, because some companies are net beneficiaries of the CBN’s policy stopping the sale of foreign exchange to Bureaux De Change operators.
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Index and Market Caps
The key performance NGXASI, at the end of the day’s trading, gained a significant 609.36bps, closing at 39,176.62bps, from an opening level of 38,567.26bps, representing a 1.58% growth, just as market capitalization rose sharply by N318bn at N20.41tr, from its opening value of N20.09tr, also representing a 1.58% value gain.
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Tuesday’s upturn was driven by price appreciations in high and medium cap stocks like Airtel Africa, MTNN, Access Bank, NNFM, Honeywell, Ecobank Transnational Incorporated, Oando, Fidelity Bank, Vitafoam, UBA, United Capital, and Custodian Investment, among others. These gains, expectedly, impacted positively on Year-To-Date loss, reducing it sharply to 2.72%, just as the loss in market capitalization YTD also crashed to N649.46bn, representing a 3.04% decline from its opening value for the year.
Bearish Sector Indices
Sectorial performance indexes were bearish, except for the NGX Oil/Gas that closed 0.11% higher, while the NGX Insurance Index led the decliners, after losing 0.18%, followed by Consumer, Industrial Goods and Banking with 0.09%, 0.06%, and 0.02%respectively.
Market breadth was positive, as gainers slightly outnumbered losers in the ratio of 21:20, while transactions in volume and value terms were up significantly also, with stockbrokers trading 474.53m shares worth N3.98bn, compared to the previous day’s 194.95m units valued at N1.02 billion. Volume was boosted by trades in BOC Gases, GTCO, ETI, Jaiz Bank, and FBN Holdings.
Airtel Africa and Unity Bank were the best-performing stocks during the session, as they gained 10% and 7.14%, closing at N715 and N0.60 per share respectively on the strength of market forces and sentiments. On the flip side, Juli Pharmacy and Consolidated Hallmark Insurance lost 9.01% and 6.90% respectively, closing at N1.01 and N0.54 per share, on selloffs and profit-taking.
Market Outlook
We expect the mixed trend to continue, as investors play defensive stocks and high cap companies that control an estimated 60% of the market in the face of ongoing portfolio reshuffling and interpretation of the corporate earnings ahead of the July inflation, and Q2 GDP data release, as well as results from interim dividend-paying banks. Also, investors are still observing the interplay of market forces following recent developments in the FX market with the decision to stop the sale of US$ to BDC operators immediately. The day’s mixed volume suggests that smart money is taking advantage of the oscillating trend and relatively low prices to reposition. It is noteworthy that oil price continues to oscillate in the international market; corporate actions, as well as the interim dividend possibilities around the corner.
We note also that some stocks are trading within their buy ranges to become more attractive at this point for income investors and traders, even as the market anticipates positive news, while oil price continues to oscillate above $68pb to support the global economy and stock market recovery across climates. We also expect the ongoing COVID-19 vaccination to support global and domestic economic recovery that will enhance the market and give direction.
The banking sector and others remain attractive on the back of the prevailing low prices, despite the mixed half-year earnings.
Again, the way to go is: Target dividend-paying stocks and fundamentally sound companies with growth prospects in 2021 and beyond, 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 a 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 the coming week.
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