Market Update for the Week Ended January 22 and Outlook for January 25-29
It was a bearish week, with mixed sentiment, amidst profit booking ahead of the Monetary Policy Committee meeting of the Central Bank of Nigeria (CBN), while investors are on the lookout for the first sign of financials in the coming earnings reporting season. The month of January is gradually winding down and the market remains at its overbought region, resisting further decline by trading above a strong support level- the 41,000 psychological line. In the week under review, the benchmark Nigerian Stock Exchange (NSE) All-Share index side trended on a very high traded volume and positive breadth.
Looking at the global monetary policy trend, many economies are pushing their rates down in a bid to jumpstart their economy again, even while effects of the COVID-19 pandemic and inflation rates remain relatively low. Investdata agrees with analysts who believe that the CBN should sustain its low rates and unconventional monetary policies, as a way of driving economic recovery and job creation for Nigerians. We therefore see slim chances of a rates increase rates at the meeting. However, should the members opt for inflation targeting, , there is a likelihood of an upward adjustion.
Given that the changing trading pattern in the market supports low priced, medium cap stocks and high dividend yields trading above a 9% yield, even as the full-year numbers of most company would arrive in between February and March. This rally witnessed by kobo stocks is driven by speculators offering liquidity in these stocks, which suggest that smart traders or investors in these trades should start taking profit to avoid being stuck in stocks without fundamentals and slim possibility of rewarding investors with dividend.
The relative stability in the market is attributed to many factors, especially the holding structure, activities of domestic institutional investors (mostly Pension Fund Administrators), who together control over 68%, in the midst of low yields. Others include the rising crude oil prices in the global market and earnings expectation. This PFA’s are long term investors interested in high yields which some equities have already offered them. These investors were attracted to the stock market for shorter time returns on their investment. The recent rates adjustment in the bond primary market auction last week, signals a gradual improvement in the fixed income market yield which may threaten the equity space. At the last primary market auction for bonds, rates rose by 195bps on the 25y-ear and 180bps on the 15-year.
Movement Of NSEASI
The NSE’s composite All-Share index closed south in four of the five trading sessions of the week, on profit-taking and high traded volume in a volatile trend, while maintaining a ranging movement, in addition to increased demand for kobo stocks that revealed some recovery. Low priced stocks are set to outperform the high cap equities in 2021, even as the economy is set to come out of recession.
Specifically the NSEASI opened the week on a negative note, losing 0.23%, due to profit taking and mixed sentiment that was sustained on Tuesday, when the index shed 0.07%, before it retraced up at the midweek, gaining 0.23% on renewed buying interests. This was short-lived on Thursday and Friday as the composite index lost 0.12% and 0.27% respectively on selloffs and profit taking, resulting in a cumulative 0.42% loss from the previous week’s 2.63%.
The NSEASI lost 174.15 basis points during the week, closing at 41,001.99bps, after opening the week at 41,174.15bps, touching an intra-week lows of 40,830.65bps, from its high of 41,234.99bps. This was as a result of increased selling sentiment in medium and low cap stocks that rallied recently, just as market capitalization for the period fell by N81bn during the week, closing at N21.45tr, from the previous weekend’s N21.53tr, representing a 0.38% value loss.
The advancers’ table for the week was dominated by low cap stocks, reflecting the speculative moves and buying interests among investors as the trading pattern signaled a recovery of the nation’s economy from recession. Market breadth was positive during the week, revealing the higher prices among medium and low priced stocks, despite the profit booking.
During the period also, advancers outnumbered decliners in the ratio of 53:29 on mixed sentiments and volatility, with Money Flow Index reading 88.20bps, as against 86.88 points in the previous week. This is an indication that funds entered the market during the week irrespective of traders cashing out their profit.
In the period under review, Unilever Nigeria released its full year 2020 audited results which was recording a marginal topline growth, bottom line remained south, although there was an observed decrease in the quantum of loss, besides the improvement in finance income that helped the company numbers. Others like Academic Press and Multiverse released their quarterly numbers, just as Transcorp Hotel listed additional shares resulting from its recent Rights Issue, raising total shares in issue to 10.24bn ordinary shares. So far, more quoted companies have notified the exchange of the closed periods for their audited 2020 financials and board meetings.
NSEASI WEEKLY CHART MOVEMENT
NSE index witnessed a pullback and mixed sentiment during the week on selling mood, while discerning investors accumulate position among the dividend paying stocks ahead of the 2020 earnings season that just kickoff with Unilever releasing its full year earnings reports to the market. The NSE index is trading above the 50 and 200-day Moving Average, as well as the seven-day moving average. A breakdown of 41,000 support level on a high traded volume and selling pressure. This may likely usher in a distribution phrase if sentiment turn negative to fuel selloff in the new week. As February market performance has been dicey and down as revealed by historical data and pattern.
The market’s recovery moves and bull-trend remain strong and intact as factors for the market’s continued increase as 41,234.99 remain strong resistance level to watch out for at this time, even as crude oil price is oscillating to above$54 per barrel in the international market, while government has earmarked N424m for import of the Coronavirus vaccine in Q1 2021.
However, we envisage a mixed outlook for February while not ruling out profit booking at any moment. Also, the mixed outlook is not out of place, given the expected impact of the border reopening, expected COVID-19 vaccine importation, high liquidity, and extension of the 2020 capital budget implementation. There is also the impact of oil prices increase from the March 2020 low, given the strong Money Flow Index, as MACD remains in the bullish zone on a weekly chart. ‘Buy’ volume for the period stood at 42% and sell position at 58% with total transaction index at 2.39.
Bearish Sectoral Indices
The week’s performance indexes across sectors were bearish, led by the NSE Banking which lost 1.33%, followed by Insurance, Industrial Goods, Energy and Consumer Goods that closed 0.80%, 0.51%, 0.13% and 0.09% lower respectively.
The general market outlook remains strong and mixed in the short-term, following which investors should take short and medium-term positions, while diversifying their portfolio 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. The recent market rally calls for value investing as numbers from some companies and sectors were expectedly mixed, given the negative impact of the COVID-19 pandemic and the arson that followed the #EndSARSprotests on full-year results, as revealed by the macroeconomic indices.
Activities were mixed as traded volume rose by 24.35% to 4.29bn shares from the previous week’s 3.45bn units, while value fell by 20.59% to N25.99bn, as against the previous week’s N32.73bn. Volume was driven by trades in the Financial services, Conglomerates and Oil/Gas sectors, particularly Transcorp, Living Trust Mortgage, Japaul Gold, Zenith Bank and Access Bank.
Champion Breweries and Trans-Nation-wide Express were the best performing stocks which gained 44.44% and 37.50% respectivelyat N1.59 and N1.10 each on market sentiments and news of acquisition. On the other hand, Japual Gold and AXA Mansard Insurance lost 37.50% and 20% respectively, closing at N0.95and N1.28 per share on profit taking.
We expect the mixed trend and profit-taking to continue as investors await the MPC meeting outcome, while observing the changing yield in fixed income environment, as misprice companies and dividend-paying stocks remain attractive, ahead of the market’s major earnings reporting season, especially as low interest rates and oil price oscillation have so far supported the Nigerian economy and equity market. There is also the likelihood of reversal of trend and continuation, as investors position in high yields stocks in the New Year. Equally important is the fact that technical indicators reveal overbought on the weekly and daily chart, while the RSI reads 70 points and above, a situation that supports the likelihood of another correction.
There is also the expected economic data, as well as the ongoing portfolio repositioning ahead of the 2020 full-year earnings reporting season in Q1 of 2021.
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