Market Update for February 11
The benchmark All-Share Index of the Nigerian Stock Exchange (NSE) resisted further decline on Thursday, thereby halting eight successive sessions of losses on a very high traded volume and buying position of 100%.
The day’s rebound followed gains by two high cap stocks- Dangote Cement and MTN Nigeria, as the market turned around and closed higher, even as the high transaction volume, just after previous day’s low suggests that the ongoing price correction may be temporary. This is especially as all eyes are fixed on the expected full-year earnings season which would begin any moment soon.
As nervous players panic out of their position on pullbacks and correction, bargain hunters are taking advantage of the low prices to position in high dividend-paying companies, a situation that reveals some measure of confidence among ahead of earnings reports.
The price pattern of many stocks at the end of Thursday’s trading reveals sharp reversal, which will be confirmed by trading activities on Friday and next week.
As such, it is important to let your investment objective, entry and exit strategies guide you to survive and profit from the expected new trend, if the full-year earnings reports and dividend news fail to impact and support the current trend, a big rotation in sector trends should also guide you going into the future.
Just as mentioned above, Thursday’s recovery was driven by gains recorded in Dangote Cement and MTNN. Further establishing this fact is the number of active equities that closed below their respective opening prices.
In our opinion, playing dividend stocks will reduce investment risks at the moment; even as another possible strategy is to sell off some stocks to reposition later at lower prices, or to hold position. You could also buy more of high yield, dividend-paying stocks at a stronger support level to average down, since the market is entering into another season.
Thursday’s trading started on the downside until mid-morning, before oscillating between midday and afternoon on position taking in mispriced stocks, a situation that pushed the composite index to an intraday high of 41,016.74 basis points, from its lows of 40,326.21bps. Thereafter, the market closed above the opening level at 41,014.30bps.
Market technicals were positive and mixed, with higher volume traded than previous day’s in the midst of breadth that favoured the bears on a high buying pressure as revealed by Investdata’s Sentiments Report showing 100% ‘buy volume. Total transaction volume index stood at 2.18 points, just as the momentum behind the day’s performance remained relatively weak, with Money flow index looking down to 41.68pts, from the previous day’s 45.66pts, indicating that funds entered the market despite the continued selloffs,
Index and Market Caps
At the end of the day’s trading session, the NSEASI gained 318.29bps, closing at 41,014.30bps, having opened at 40,696.01bps, representing 0.78% up. Market capitalization similarly recovered N166.51bn, at N21.46tr from N21.29tr, also representing0.78% value gain.
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The day’s upturn was also impacted by buying interest in Dangote Cement, MTNN, Unilever, Vitafoam and Mutual Benefits Assurance, among others, raising Year-To-Date gain to 1.85%, just as YTD gain in market capitalization stood at N399.67bn, or 1.90%.
Bearish Sector Indices
The performance indexes across sectors were bearish, except for the NSE Industrial Goods that closed 2.57% higher on the strength of gains by DangCem, while the NSE Banking index led the decliners, shedding 2.98%. It was followed by the Insurance, Energy and Consumer Goods with 2.93%, 0.90% and 0.32% lower respectively.
Market breadth turned negative, as decliners outpaced advancers in the ratio of 46:7; just as transactions in volume and value terms were up by 243.24% and 16.79% respectively, after stockbrokers traded 1.27bn shares worth N6.4bn, as against previous day’s 366.86m units valued at N5.48bn. Volume was driven by trades in Living Trusts Mortgage Bank, with 796.453m units, Transcorp, FBNH, UBA, Zenith Bank and Fidelity Bank.
Dangote Cement and Mutual Benefits Assurance were the best performing stocks, gaining 7.04% and 5.41% to close, at N228.00 and N0.39 per share respectively, on earnings expectation and market forces. On the flip side, Linkage Assurance and Livestock Feeds lost 10% each, closing at N0.54 and N2.25 per share, on profit taking.
Market Outlook
We expect a mixed trend as bargain hunters increase their positions, suggesting that the ongoing correction may not last, but could create entry opportunities for investors and bargain hunters ahead of earnings expectations and reaction to numbers that would be unveiled. Given that dividend yield remains relatively high, we advise that you target dividend-paying stocks and fundamentally sound companies with growth prospect in 2021, looking way of mispriced ones. This is especially given the rising oil prices that had 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.
There is, nonetheless, also the likelihood of a reversal in trend and continuation, as investors position in high yield stocks ahead of the earnings season. Also, important is the fact that technical indicators reveal overbought on the weekly and daily chart, while the RSI read 70 points and above, a situation that supports the likelihood of another correction.
However, the strong and faster recovery may continue, depending on market forces, going forward, as propelled by expected 2020 full earnings reports, especially now that the outcome of the MPC meeting has given the market a direction, until the next gathering in March.
The NSE’s index action and indicators are looking up in the same direction on a very high traded volume and positive buying sentiments.
Again, 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 rest of the year.
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Ambrose Omordion
CRO|Investdata Consulting Ltd
ambrose.o@investdataonline.com
Tel: 08028164085, 08032055467
