Bull-run, Profit Taking Ahead, As Investors Position In Sectors Expected To Boost Recovery

Market Roundup for November

Nigeria’s equity market, on Monday, finished November positive, after the composite All-Share index recorded its best monthly gain since February 2018, extending the recovery and bullish trend for the fifth successive month. Help came from positive sentiments that followed the better-than-expected 2020Q3 corporate earnings reports, sliding money market rates and bargain hunting, as investors positioned for higher yields in equity assets.

The Nigerian Stock Exchange ASI rallied by 14.78%, better than the strong 13.79% boost in October, even as it was below the 15.95% and 38.27% monthly gains recorded in January 2018 and May 2009.

The strong rally followed the nine-month earnings reports from quoted companies with December financial year, supported by leading market fundamentals, like the rates crash in other fixed income trading instruments. There were other issues like the hike in the pump price of petrol, that further drove headline inflation rate higher and the outcome of the Monetary Policy Committee (MPC) meeting, which almost scared the bull off the market. There was the devaluation of the Naira by the apex bank towards the very end of November in the bid to achieve unified exchange rates.

Meanwhile, the new month of December, being the last in the quarter and year, will not only witness new position taking towards the 2020 audited financials expectedly in the first quarter of 2021. It will also witness reactions to year-end window dressing, and the Santa Claus rally in this new month, especially the dividend paying stocks.

Note that despite the seeming ongoing disconnection of the market from prevailing economic realities, as shown by the fact that news of Nigeria’s slip into an economic recession did not elicit the normal reaction as the market rallied on in what many believe is investors way of saying “we are not surprised.”

The good thing, however, is that government and CBN have continued to intensify their interventions efforts by extending bailout to other critical sectors like the media and aviation industries to mitigate the effects of the Coronavirus pandemic. This is expected to quicken economic recovery as shown by the recent marginal improvement in macroeconomic indices, while further supporting the stock market as companies in critical sectors, especially, rebound with better performance and stronger numbers. 

Despite the nation’s 14.23% inflation rate, 3.62% negative Q3 GDP which came better than the 6.1% Q2 contraction, and the marginal improvement in Nigeria’s Purchasing Managers’ Index (PMI) of 50.20 points, from 49.6% in October. Also noteworthy is the fact that COVID 19 cases are still being reported, but at a much slower rate, while investors’ buying interest and sentiments remain positive.

This is linked to the grossly undervalued state of Nigerian stocks, even as the subsisting low interest rates continue to support the equity market, despite the low inflow of foreign investors and exchange market problems as the Central Bank of Nigeria moves to address foreign exchange flows.

We believe effective coordination will reduce policy mismatch, summersaults and promote realistic economic reforms, structural adjustments, effective disbursement of capital project funds and real change in the implementation style of the government, which are necessary to hasten economic recovery by enhancing productivity and national output needed to support growth. 

The bull-run in November was obvious in the 21 trading sessions of the month, as the market closed positively in 13 and red in eight, extending the previous month’s positive outlook. It also boosted the year-to-date position, as the NSEASI soared to 30.55%, owing to the low price attraction, positive reaction to earnings and high yields in equity space. Despite the economic challenges and others, many stocks remain attractive, offering high margins of safety and upside potentials.

Meanwhile, during the month under review, the NSEASI gained 4,511.45 basis points, closing at 35,042.14bps, after touching a high of 35,814.18bps and low of 30,364.15bps, from the 30,530.69bps it opened for the month. This came with a strong buy-market position that impacted prices of high cap stocks, thereby supporting the uptrend witnessed during the month.

The buying volume of total transactions for the month was 86%, while selling position was 14%, while volume index for the period was 1.82; just as market capitalisation for the month gained N2.35tr, closing at N18.31tr, from an opening value of N15.96 trillion, representing a 14.72% appreciation in investors’ portfolios.

The market sustained a positive sentiment and uptrend for stocks, especially with improving oil prices, expectation of seasonal trends and investors positioning in stocks that have strong yields to hedge against rising inflation, even in the midst of Naira depreciation against other currencies. 

Traded volume for the month was up by 28.76% to 11.55bn shares, from 8.97bn units in October, even as market breadth was positive, with advancers outnumbering decliners in the ratio of 75:17. This reflected on the benchmark index and other sectorial indices that closed higherin the period under review.

The sectoral performance indexes closed positive as shown below, with the NSE Industrial Goods, Insurance, Consumer Goods, and Banking indices driving the market, after gaining 23.95%, 8.85%, 6.18%, and 5.72% respectively. The telecoms sector broke out during the period, impacting the market positively, a situation that is expected to continue in the new month, given the sector’s robust benefit from the new normal and increasing consumption of data and related services.

November’s best performing stocks were Livestock Feeds, which gained 60.49% on impressive earnings since 2019, when it attained profitability; followed by BOC Gas, whose share price appreciated by 53.86% on positive market sentiments despite the mixed numbers. Telecoms giant- Airtel Africa followed with 43.47%; while Dangote Sugar chalked 42.75%.

Among the month’s top gainers were: Transcorp, 40.85%; Unity Bank, 39.66%; NNFM, 36.96%; Tripple Gee, 30.43%; and Dangote Cement, 28.13. As earlier mentioned, the gains by Airtel Africa and Dangote Cement were driven by positive sentiment and impressive Q3 earnings performance, following the interim dividend from Airtel and ongoing share buyback by Dangote Cement.

Best Performing Stocks in November 2020 
SecuritiesSectorOpenClose% ChangeRemarks
Livestock FeedsAgro business0.811.3060.49Impressive Earnings
Boc GasIndustrial Goods         4.406.7753.86Market forces
Airtel AfricaTelecoms410.20588.5043.47Impact of Div
Dangote SugarConsumer Goods           13.80   19.7042.75Impressive Earnings
TranscorpConglomerates0.711.00     40.85 Positive Sentiment
Unity BankBanking0.580.81     39.66Market Trend
NNFMConsumer goods5.066.93     36.96Impressive Earnings
Tripple GeeServices0.460.60     30.43Market Forces
Dangote CementIndustrial  goods160205.00     28.13Market Forces
Aiico InsuranceInsurance0.861.10     17.78Bonus Issue

Source; Investdata Research

The worst performing stocks, on the other hand, were Eterna, and Cutix from which Investors recently took profits leading to loss of 12.43% and 11.56% respectively; GSPEC Plc shed 9.89%; Trans nationwide Express, 9.37%; and Stanbic IBTC, 8.92%. Consolidated Hallmark Insurance shed 8.82% due to market forces, just as Unilever lost 6.83%; followed by Learn Africa, 5.45%; and Courtvile Business solution, 4.75% on the back of declining earnings performance.

Worst Performing Stocks in November  2020 
SecuritiesSectorOpenClose% ChangeRemarks
EternaOil/Gas  5.154.51-12.43Profit Taking/Market Forces
CutixIndustrial Goods1.731.53-11.56Profit Taking
GSPEC PlcServices4.654.19   -9.89Market Forces
Trans Nationwide ExpServices0.960.87-9.37 Profit Taking
Stanbic IBTCBanking46.5042.35-8.92Profit Taking/Market Forces
Consolidated HallmarkInsurance0.340.31-8.82Market forces
UnileverConsumer Goods13.9012.95-6.83Unimpressive earnings and market forces
Learn AfricaServices1.10 1.07-5.45Profit Taking
Courtville BusinessICT0.210.20-4.74Market forces
SeplatOil/Gas420.00400.70-4.68Market forces

Source: Investdata Research

Technical Analysis of July market


Bargain hunters and positive sentiments have pushed the market into a short-term overbought region and perfect bull rally as the NSE composite index broke out various psychological lines of 31,000 to 35,000 level and tested Fibonacci retracement line of 161.8 on a high traded volume to formed a double top chart pattern on monthly time frame. This clearly signals warning of an impending price correction, or profit taking, before any retracement in the new month.

The symmetrical triangle chart pattern also supports continuation of current trend or pullback depending on market forces and news. 

Investors and traders should stay very cautious with their investments throughout the new month and beyond, by having good entry and exit strategies at all time.

Market Outlook

We expect a mixed month, as traders and investors interpret the recent earnings reports and economic data, coupled with portfolio repositioning ahead of the December seasonal trends and expectorations. This is given that the market has seemingly ignored the news of Nigeria’s entry into a second economic recession in five years. 

Meanwhile, given the persisting bull-run, profit taking is evitable, being a regular behaviour of stock markets. Any price correction at this phase of market recovery will support the upside potentials. This is especially as many fundamentally sound stocks remainunderpriced, while the dividend yields of major blue-chips continue to look attractive, despite the recent weeks’ rally.

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CRO|Investdata Consulting Ltd





Tel: 08028164085, 08032055467

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