Reversal Likely, As Investors Digest Q2 GDP Data, Await News From Dividend-Paying Banks
Market Update for August 30
Trading activities on the Nigerian Exchange on Monday were very volatile and mixed with the All-Share Index closing lower on a very high traded volume and positive market breadth as the month of August winds down on a positive sentiment to remain in a range band movement while awaiting a breakout or down. This will be determined by the strength of market interpretation of the better-than-expected macroeconomic data and corporate earnings and ahead of the Central Bank of Nigeria Monetary Policy Committee meeting in the new month and preparation for the last quarter of the year that is the most active due to seasonality for which the period is known.
The seeming selloff at the end of the session was attributed to profit-taking, as high cap companies and medium-priced stocks suffered losses due to continued portfolio repositioning at the end of the month that will usher in September- the end of the quarter for major window dressing. So as the month of August closes positive, extending the previous month’s bull transition, the new month’s outlook remains mixed, as the half-year results of interim dividend-paying banks and the accompanying corporate actions are likely to influence the NGX index in the period, among other news or factors.
Technically, the NGX index’s action remains in its consolidation range, but Monday’s pullback on a very high volume should be of concern as money flow, MACD, and other indicators signalled a change of trend that will be confirmed in Tuesday’s trading. At this point, to manage your trade profitably there is the need to effectively combine your fundamental analysis and technical tools to remain in profit and identify new trade opportunities in the market.
Meanwhile, Monday’s trading opened on the upside and was sustained till midday before oscillating on profit-taking in major sectors and high cap stocks which pulled back the benchmark index to an intraday low of 39,294.21 basis points, from its highs of 39,534.81bps. Thereafter, it closed below the opening point at 39,326.67bps.
Market technicals were negative and mixed as volume traded was higher than that of the previous day in the midst of positive breadth and sell sentiment as revealed by Investdata’s Sentiment Report showing 13% ‘buy’ volume and 87% sell position. Total transaction volume index stood at 1.28 points, just as the momentum behind the day’s performance was relatively strong, with Money Flow Index reading 66.66points, from the previous day’s 75.58 points, an indication that funds left the market as players took profit.
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Index and Market Caps
The composite NGXASI, at the end of Monday’s trading, shed 158. 98bps, closing at 39,326.67bps, from its opening level of 39,485.65bps, representing a 0.40% decline, just as market capitalization fell by N82.83bn at N20.49tr, from the opening value of N20.57tr, also represented 0.40% depreciation in value.
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The day’s downturn was due to selloffs and profit-taking in stocks like Dangote Cement, GTCO, Zenith Bank, Oando, Eterna, Access Bank, ETI, NNFM, Caverton, and NEM Insurance, among others. These impacted negatively on Year-To-Date loss, which increased to 2.34%, just as the loss in market capitalization YTD stood at N566.92bn, representing a 2.69% decline from the year’s opening value.
Mixed Sector Indices
Performance indexes across the sectors were down, except for the NGX Consumer and Insurance that closed higher by 1.17% and 0.84% respectively, while the NGX Industrial Goods Index led the decliners, after losing 1.43%, followed by Energy and Banking with 1.15% and 0.15% respectively.
Market breadth turned positive as gainers outnumbered losers in the ratio of 21:18, while activities in volume and value terms were mixed as investors exchanged 301.01m shares worth N1.54bn, compared to the previous day’s 232.85m units valued at N1.85bn. The day’s volume was driven by trades in Transcorp, Honeywell, Consolidated Hallmark Insurance, Oando, and UPDC.
Honey and UPDC were the best-performing, gaining 9.86% and 9.84%, closing at N3.90 and N2.01per share respectively on acquisition expectation and market forces. On the flip side, Champion Breweries and Eterna lost 7.73% and 7.20% respectively, closing at N2.03 and N6.96 per share, on selloffs and profit-taking.
Market Outlook
Being the last trading day of the month we expect a reversal within the consolidating ranging as the market digest Q2 GDP growth ahead of more first-tier banks results, as well as the continued repositioning of portfolios ahead of the year last quarter. Also, investors are still observing the interplay of forces in the FX market as the CBN gives a guideline for the new digital currency platform. The day’s low volume suggests that institutional investors and others are still cautiously looking at the numbers. It is noteworthy that oil prices rebounded in the international market; corporate actions, as well as the interim dividend possibilities, are 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 a 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 and last quarter economic activities. 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 next month.
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