Market Update for the Week Ended May 17 and Outlook for May 24-28
It was a bearish week, as the Nigerian Exchange Limited reversed previous week’s gains on selloffs in highly capitalized stocks, made worse by profit taking, just as investors and traders repositioned their portfolios on the strength of Q1 numbers and economic data. This is also coming ahead of the Central Bank of Nigeria (CBN) Monetary Policy Committee meeting, as well as month-end and the half-year earnings reporting season.
The downward trend came in the midst of high volatility, as the NGX All-Share index’s action broke down various support levels on a less than average traded volume as revealed by the volume pattern. The action and pattern exemplify the uncertain economic environment, given that one indicator can come out positive but deceptive, since it does not reflect overall economic realities.
Being the last trading week in the month of May, the market may oscillate, depending on the MPC meeting outcome.
But, technically, the market has given a sign of rebound on daily and weekly time frames, but is awaiting confirmation during Monday’s trading session.
The marginal drop in inflation rate is only reflected of a base effect, which in our view does not suggest in any way that inflationary pressure across the country is abating, notwithstanding the fact that the National Bureau of Statistics (NBS) attributes the slowdown in the April consumer price index of 18.12% from 18.17% in March to the dry season harvest.
In a state of stagflation, where economic growth is slow and inflation is high, despite the slight decline, members of the CBN MPC should not be in a hurry to hike rates amidst the nation’s rising insecurity level.
Also despite the equally 0.51%in marginal growth in 2021Q1 GDP, the MPC would likely holds rates on the back of this deceptive slowdown in inflation, given that the benchmark Monetary Policy Rate is currently disconnected from the rate environment, as with yields on treasuries and FGN bonds reflect the actual interest rate dynamics.
Movement Of NSEASI
The NGX All-Share Index opened the week lower after losing 0.44%, thereby halting Friday’s buying sentiments, a trend that was sustained on Tuesday when the composite index shed 0.72%. The selling sentiment persisted for the rest of the week as the benchmark index lost 1.48% by the midweek, just as the pullbacks continued on Thursday and Friday with the index shedding 0.30% and 0.01% respectively. These brought the week’s total loss to 2.93%, as against previous week’s 0.72% gain.
In all, the key performance index shed 1,157.82 basis points from the 39,481.89bps opening level, after touching intra-week low of 38,282.51bps, and high of 39,485.18bps, before closing the week at 38,324.07 on selloffs among high and medium cap stocks. During the period also, market capitalization lost N603bn, closing at N19.98tr, compared to the previous week’s N20.58tr, also representing a 2.93% depreciation in value.
Just as usual, low priced stocks and medium cap equities dominated the advancers table, as players continued to book profits and reposition their portfolios in expectation of stronger Q2 numbers. During the week also, the prices of Cadbury, Prestige Assurance and May & Baker were adjusted for the N0.18, N0.05 and N0.30 recommended by their directors respectively. Also, trading and price actions revealed the presence of sellers in four sectors that supported the bear-rampage.
The week recorded negative breadth as losers outpaced gainers in the ratio of 41:26 on selling pressure and relatively weak momentum, as Money Flow Index looked up to read 32.70bps, from the previous week’s 30.18 points
NSEASI WEEKLY CHART MOVEMENT
The NGX index action for the period under review caved in on selloffs and profit taking to form a double bottom on the weekly and daily charts in the midst of the selling sentiment and an ongoing portfolio repositioning on the strength of Q1 financials that beat market expectations, and high upside potentials. As economic data were below expectation
Going forward, all eyes are on MPC meeting and Q2 numbers in the face of rising fixed income yields. There is also an increased volatility rate in the midst of changing price patterns and trading environment, while discerning investors continue accumulating positions in undervalued and growth stocks.
Also, we note that the index’s candlestick formation on a weekly and daily charts are given signal or direction, so we have to wait for confirmation during Monday’s session, depending on market forces in the new week. We observe that volume traded was low, as the daily timeframe chart signals a top that needs confirmation also on Monday.
Nevertheless, we see the market reversing up, especially as investorsawait March year-end corporate earnings reports, just as the index continues trading below the 39,000 basis points.
The strong support level to watch out for on the NGX is within the 38,000bps and 38,282,51bps, and a breakdown of these levels will attract new positioning by traders and support stronger rebound. This is happening at a time crude oil is approaching the $70 per barrel level at the international market, as more economy are reopening to business activities while the Covid-19 vaccination is on a high gear at the global and domestic levels, despite few climates suffering the second wave hit of Covid-19. As positive economic data from US and China support oil prices.
However, we envisage a mixed outlook for the rest of Q2, while not ruling out profit booking and repositioning of portfolios especially after the market recorded a sharp uptrend in 2020.
Our expectation of a mixed outlook is hinged on such factors as the possible impact of corporate earnings, ongoing vaccination, mismatch of monetary and fiscal policies, implementation of the 2021 capital budget, as well as implications of oil prices oscillating on the nation’s revenue. We note too, the impact of the Money Flow Index and MACD are bearish on a weekly chart, but bullish on daily time frame.
Bearish Sectoral Indices
Performance indexes across the sectors were bearish, except for NGX Energy that closed 7.39% higher, while NGX Industrial goods led the decliners shedding 3.34%, followed by Banking, Insurance and Consumer Goods with 1.53%, 0.74% and 0.03% lower respectively.
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, they can do, by considering sectors with high upside potentials on the strength of earnings and policy influence.
Activities in volume and value terms were up as stockbrokers transacted 1.05 billion shares worth N11.54 billion, compared to the previous week’s 840.55 million units valued at N9.56 billion. Volume was driven by trades in Financial Services,Conglomerates and ICT sectors, particularly Zenith Bank, FBNH, Fidelity Bank,Etranzact and Transcorp.
The best performing stocks for the week were Eterna andPrestige Assurance after gaining 21.21% and 15.22% respectively, closing at N8.00 and N0.53 each on impressive Q1 numbers and market forces. On the other hand, C & I Leasing and Royal Exchange lost 18.80% and 18.42% respectively, at N4.06and N0.62per share on poor payout of 5kobo and profit booking
Market Outlook
We expect the mixed trend to continue as portfolio rebalancing, profit taking and outcome of Monday and Tuesday MPC meeting, just as the economic data were below expectation and forecast in the face of rising fixed income market yields. Also, any pullback at this point offers new entry opportunities for traders and investors to reposition in value and underpriced growth stocks, while companies with March year-end accounts release their unaudited and audited full-year numbers to support recovery in the new month. This is based on the fact that the rising 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. This is especially given the oscillating oil prices that have 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 galloping inflation.
However, the strong and faster recovery may continue, depending on market forces, going forward, as propelled by expected Q1 earnings reports, until the next MPC meeting in July.
Also, 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 new year.
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Ambrose Omordion
CRO|Investdata Consulting Ltd
ambrose.o@investdataonline.com
Tel: 08028164085, 08179547605
