Amidst Rising Tension From #EndSARS Protests, Killings, Arson, NGSE Index Rebound

Market Update for October 20

Tuesday’s trading was mixed and volatile on the Nigerian Stock Exchange (NSE) as the composite index regaining the previous session’s marginal loss on low traded volume and mixed sentiment while more companies continue to release their earnings to the market. The price wave during the session was attributed to profit taking and the tension arising from the sustained #EndSARS protests which has been hijacked by hoodlums, following which different state governments imposing 24-hour curfew in their domains. The Police Inspector General has deployed anti-riot policemen to protect lives and properties nationwide, due to attacks and burning of Police divisions.

The market could rally further up if the expected corporate earnings beat expectation, and follow the way of United Capital Plc which posted impressive numbers and investors reacted positively, revealing high possibility of good dividend at the end of the current financial year despite the COVID-19 likely dividend cut at the end of 2020.

For a bull trend to continue it occasionally needs to climb a wall of fear. Bearish investors are always on the lookout for a theme that will provide them an opportunity to short a stock or sector. If prices rise, investors who shorted shares will need to cover, perpetuating the bull trend rally. This concept has recently played out when it comes to banking and telecoms stocks which have seen their stock prices declining marginally as traders took profit and weighed the ongoing protests.

Union Diagnostic released its Q3 result during the trading session and the numbers were mixed and below expectation, given the incentive and bailout the sector is enjoying. Revenue for the period rose slightly to N1.02bn from N947.21m in 2019, while bottom line turned negative at N558.57m, compared to the weak N98.51m profit. The latest numbers translate to a 16 kobo Loss Per Share, as against three kobo earned per share in the previous Q3.

Tuesday’s trading started green and was sustained till midday, before oscillating between midday and late afternoon on profit-taking and positioning in expectation of more earnings reports. This pulled the key performance index to an intraday high of 28,720.49 basis points, from its low of 28,567.07bps, after which the index closed slightly higher at 28,665.83bps on a positive breadth.

Market technicals were weak and mixed as volume traded was higher than the previous session, in the midst of breadth that favoured the bull on a mixed sentiment, as revealed by Investdata’s Sentiment Report showing 64% ‘buy’ volume and 36% sell position.

Total transaction volume index stood at 0.82 points, just as the energy behind the day’s performance remained strong, while Money Flow Index printed 74.04 points, from the previous day’s 74.38 points, an indication that funds left some stocks despite closing marginally high.

Index and Market Caps

The benchmark index, at the end of Tuesday’s trading, gained a marginal 6.76bps, closing at 28,665.83bps after opening at 28,659.07bps, representing 0.03% up, just as market capitalization rose marginally to  N14.98tr, which also represented 0.03% value gain.

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The session’s upturn was due to buying interests in medium and high cap stocks like Nigerian Breweries, Flour Mills, International Breweries, Julius Berger, and UACN, which impacted slightlyon the index leaving Year-To-Date gains at 6.79%, and Market capitalization YTD gain at N2.24bn, or 15.38% above the year’s opening value.

Bearish Sector Indices

All the sectorial performance indexes were largely bearish, save NSEConsumer Goods that closed higher by 1.86%, while Insurance led the decliners after losing 1.17%, followed by Banking, Oil/Gas and Industrial goods indexes which were down by 1.02%, 0.88% and 0.17% respectively.

Market breadth was positive as advancers outnumbered decliners in the ratio of 23:17, while activities in volume and value terms were mixed as volume transacted climbed 3.48% up as players exchanged 297.31m shares from the previous day 287.3m units, while value was down by 13.92% to N2.93bn from Monday’s N3.4bn. Volume was boosted by trades in UBA, Zenith Bank, UACN, Access Bank and Mutual Benefits.

International Breweries and United Capital were the best performing stocks, after gaining 9.90% and 8.17% respectively, closing at N6.44 and N3.84 each on market sentiments and impressive earnings. On the flip side, Cornerstone Insurance and PZ Cussons lost 4.76% and 4.65% respectively, closing at N0.60 and N4.10 respectively on profit taking and market forces.

Market Outlook

We expect this volatility to continue, even as high Dividend Yields attract inflow to equity assets, ahead of the peak period of the Q3 earnings reporting season and momentum associated with earnings season in the midst of crude oil price oscillation. 

The mixed intraday movement is likely to persist for the rest of October in the midst of expected earnings, profit booking, as well as the mismatched in economic policies and negative macroeconomic indices. This is also against the backdrop of the fact that the capital wave in the financial market may persist in the midst of relatively low-interest rates in the money market, high inflation, negative Q2 GDP of 6.1% and unstable economic outlook for the rest of 2020 as government and its economic managers are going front and back with mismatched policies and implementations.

Also, investors and traders are positioning amidst the changing sentiments in the hope of improved liquidity and positive economic indices which may reverse the current trend.

We see investors focusing on portfolio adjustment and rebalancing by targeting companies with strong potentials to grow their Q3 earnings and dividend on the strength of their earnings capacity as the year last quarter is at the corner.

Again, the current undervalue 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 for the rest of the year.

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Ambrose Omordion

CRO|Investdata Consulting Ltd

Tel: 08028164085, 08032055467