Equities

Amidst Mixed Outlook On NGX, Time To Diversify Portfolios, Protect Capital

Market Update for the Week Ended June 4 and Outlook for June 7-11

Trading activities on the Nigerian bourse last week witnessed improved buying interests among blue-chip stocks that pushed the composite NGX All-Share Index into positive territory on increased traded volume despite relatively low and flat market breadth.

The positive sentiment returning to the market after a long drawn correction and pullbacks are signs of likely reversal as revealed by the daily and weekly candlesticks in the first trading week of June, even as the buy volume for the period shows that buyers are taking over the market against sellers.  Other momentum indicators are becoming bullish, just as money flow index are looking up and showing the movement of smart money as they reposition ahead of corporate actions, economic data, end of the quarter window dressing, Q2 earnings reporting season, and the recovery in oil prices to $71 at the international market, besides the rise in fixed income yields at a time of heightening security challenges in the country. 

The recent rally or recovery noticed on the exchange has started to close the divergence between earnings and equity prices, as observed in the previous month after quarterly corporate earnings reports were announced in April.

Discerning investors who took advantage of the market pullbacks and correction in May to position in undervalued stocks with low Price-to-Earnings Ratio are already in profit, while others are waiting to confirm a breakout of the 39,000 basis points mark, or test the level and pullback to strengthen the market’s recovery mode. Already, market players are placing safe bets on Q2 numbers in the midst of the increasing insecurity challenges and rising yields.

Following the weekly chart, the NGXASI index action shows a reversal and positive picture going into the month, as the market is set to rally and experience mixed trend on profit booking, among other factors. We expect that the March year-end audited results and half-year interim dividend/earnings season will support market fundamentals. 

Usually, as prices move away from the bottom, a sharp recovery may take place initially after the bottom completes. The rebound recorded last week or initial upward price trend often represents some of the strongest upward momentum after bearish trend.  

Movement Of NSEASI

This week, buy interests dominated trading as the NGX ASI recorded four sessions of up market and one down, due to positive sentiments extending from the previous week as the composite index opened with 0.50% up, before going south on Tuesday, when it lost 0.06%, only to rebound by the midweek when it gained 0.20%. This was sustained on Thursday and Friday when the market recorded 0.20% and 0.50% growth respectively, bringing the week’s total gains to 1.23%, a significant rebound, compared to against previous week’s 0.18% slide.

Specifically, the key performance index gained 469.15 basis points, rising from the 38,256.96bps opening level, after touching an intra-week high of 38,726.10bps where it closed for the week, compared to the low of 38,256.21bps, on buy interests in bellwethers and medium cap stocks. During the period also, market capitalization rose by N245bn, closing at N20.19tr, compared to previous week’s N19.94tr, which also represented a 1.23% appreciation in value. 

Just as usual, the week’s advancers table was dominated by kobo stocks and medium cap equities, as repositioning continued ahead of Q2 earnings expectations. Also, trading and price actions revealed the presence of buyers in three sectors that supported the recovery.

The week recorded a flat breadth with advancers equal to decliners in the ratio of 33:33 on 100% buying sentiment and relatively strong momentum, as Money Flow Index looked up to read 40.65bps, from the previous week’s 33.40 points.

NSEASI WEEKLY CHART MOVEMENT

The NGX index action, after forming a systematical triangle-chart pattern, rebounded on improved buying volume that supports an uptrend, depending on market forces during the new week. The bullish candle signals reversal on a weekly time frame, while the daily chart is already trending up in the midst of the buying sentiments and positive breadth, amidst the ongoing portfolio repositioning on the strength of expected economic data and Q2 financials expected at the end of this quarter.

The strong resistance level to watch out for on the NGX is within the 38,814bps and 39,000bps, and a breakout of these levels will attract new positioning by traders and support uptrend. This is happening at a time crude oil has crossed the $71 per barrel level at the international market, as more economies reopen to business activities while the Covid-19 vaccination is on a high gear at the global and domestic levels. There is also the impact of positive economic data from U.S and China that would support oil prices.

Mixed Sectoral Indices

Performance indexes across the sectors were mixed, with the NGX Industrial goods, Insurance and Banking closing 2.60%, 1.25% and 0.04% higher respectively, while the NGX Energy led the decliners, shedding 0.79%, followed by Consumer Goods that closed lower by 0.37%.

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 should do, by considering sectors with high upside potentials on the strength of earnings and policy influence.

Activities in volume and value terms were marginally up as stockbrokers traded 1.08bn shares worth N9.55bn, compared to the previous week’s 1.04bn units valued at N9.47bn. Volume was driven by trades in Financial Services, Oil/Gas and Conglomerates sectors, particularly Sovereign Trust Insurance, Zenith Bank, Veritas Kapital Assurance, Mutual Benefits and Transcorp.

The best performing stocks during the week were University Press and Morison Industries which chalked 43.59% and 20.21% respectively, closing at N1.68 and N1.13 each on full-year earnings expectation and market forces. On the other hand, CWG and Royal Exchange lost 26.09% and 11.11% respectively, at N1.53and N0.72per share, on selloffs and profit bookings.

Market Outlook

We expect mixed performance on profit taking and portfolio readjustment on the recent rally, as all eyes are on economic data and Q2 corporate earnings, in the face of rising fixed income market yields. Also, any breakout 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 auditedfull-year numbers to support recovery. This is based on the fact that the rise in 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 ahead of interim dividend announcement. This is especially given that despite the seeming improvements, fixed income yield continues to offer 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 July.

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CRO|Investdata Consulting Ltd

info@investdataonline.com

info@investdata.com.ng

ambrose.o@investdataonline.com

ambroseconsultants@yahoo.com

Tel: 08028164085, 08179547605

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