Caution, Amid Bull-run, Economic Data, Fixed Income Market Devts, Year-end Positioning
Market Roundup for November
It was a volatile and mixed November as the month recorded selloffs and buying interests to finish higher on the Nigerian Exchange, after the composite All-Share index posted the third-best monthly gain in 2021, extending the recovery and bullish trend for the fifth consecutive month. Help came from positive sentiments that followed telecommunication stocks, the improved economic data, better-than-expected 2021Q3 corporate earnings reports, declining money market rates, and bargain hunting, as investors positioned for higher dividend yields in equity assets.
NGX’s key performance index rallied by 2.88%, slower than the 4.52% position in October, and the 5.32% monthly gains recorded in January 2021.
The mixed sentiment and selling pressure followed the nine-month earnings reporting season momentum as traders cashed out a profit in the midst of better than expected corporate earnings from quoted companies with December financial year-end, which supported market fundamentals. Also noteworthy was the decline in headline inflation rate for the seventh consecutive month and the outcome of the Monetary Policy Committee (MPC) meeting, which was in line with market expectations with all policy instruments left unchanged, even as economic recovery is still weak. There was the devaluation of the Naira by the apex bank towards the very end of November in the bid to manage exchange rates.
Meanwhile, the month of December, being the last in the quarter and year, will not only witness a new position taking towards the 2021 audited financials expectedly in the first quarter of 2022. It will also witness reactions to year-end window dressing, and the Santa Claus rally in this new month, especially the dividend-paying stocks. This is as institutional investors try to rotate their positions, considering the fact that the fixed income market is no longer attractive at this point.
Note that despite the seeming ongoing fourth wave pandemic fear and oscillating oil price in the international market, market fundamentals remain strong as corporate earnings of many companies reveal the possibility of dividend growth, instead of a cut as witnessed in 2020 due to the COVID-19 pandemic outbreak. Already, more companies had earlier paid interim dividends this year, a situation that should give investors an insight into what to expect at the end of this financial year.
Despite the nation’s 16.68% inflation rate, 4.03% Q3 GDP growth that came to complement the 5.01% Q2 recovery position, and the marginal improvement in Nigeria’s Purchasing Managers’ Index (PMI) to remain above 55 points for the period, against 54.1 points 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.
The strong earnings of many companies and bright prospects of some sectors have shown the grossly undervalued state of Nigerian stocks, even as the relative subsisting low-interest rates and unclear fixed income yield direction to support the equity market. These are despite the low inflow from 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, and summersaults while promoting realistic economic reforms, structural adjustments, effective disbursement of capital project funds, and real change in the implementation style of the government. These are necessary to hasten economic recovery by enhancing productivity and national output needed to support growth.
The mixed trend and selloffs in November were obvious in the 22 trading sessions of the month, of which the market closed negative in 15 and up in just seven, extending the previous month’s positive outlook. It also boosted the year-to-date position, as the NGXASI stood at 7.34%, owing to buy interests in high cap stocks, positive reactions to earnings, and high yields in the 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 NGXASI gained 1.209.45 basis points, closing at 43,248.05bps, after touching a high of 44,068.70bps and a low of 41,936.73bps, from the 42,038.60bps it opened for the month. This came with a mixed sentiment that impacted prices of high cap stocks, thereby supporting the uptrend witnessed during the month especially the telecoms stocks.
The buying volume of total transactions for the month was 62%, while selling position was 38%, while volume index for the period was 0.94; just as market capitalisation for the month gained N609 billion, closing at N22.57tr, from an opening value of N21.96 trillion, representing a 2.77% appreciation in investors’ portfolios.
The market sustained a mixed sentiment and uptrend for stocks, especially with recovery in oil prices, an expectation of seasonal trends, and investors positioning in stocks that have strong yields to hedge against inflation, even in the midst of Naira depreciation against other currencies.
Traded volume for the month was down by 25.51% to 6.19bn shares, from 8.31bn units in October, even as market breadth was negative, with decliners outnumbering advancers in the ratio of 72:37. This reflected on some of the sectorial indices that closed lower in the period under review.
The sectoral performance indexes closed mixed as shown below, with the NGX Growth, Insurance, Main Board, Premium, and Industrial Goods driving the market, after gaining 11.87%, 4.28%, 2.10%, and 0.72% respectively. The telecoms sector broke out during the period, impacting the market positively, a situation expected to continue in the new month, given the sector’s robust benefit from the new normal and increasing consumption of data and payment service banking license in progress. The Oil/Gas led the decliners after losing 7.56%, followed by Banking, Consumers goods and pension with 4.78%, 3.92%, and 1.75% respectively
November’s best-performing stocks were University Press, which gained 35.48% on impressive earnings Q2 earnings reports and market sentiment; followed by Airtel Africa, which got super agency and payment service banking license from CBN, as its share price appreciated by 21.79%, despite the mixed numbers from the telecoms giant. Next was Living Trust Mortgage with 20% which impacted the NGX Growth index; while Honeywell chalked 9.72%.
Among the month’s top gainers were: ABC Transport, 9.68%; SCOA, 9.47%; Academy Press, 9.09%; MTNN, 8.20%; and FBNH, 8.14%.
Source; Investdata Research
The worst-performing stocks, on the other hand, were Cutix and UPDC from which share price was adjusted for bonus shares and dividends as Investors recently took profits leading to loss of 55.40% and 40.56% respectively; Aiico Insurance shed 33.06% on markdown for bonus share of 12 for 9 held; Eterna, 30.06%; and NGX Group, 18%. Consolidated Hallmark Insurance shed 16.67% due to market forces, just as Chams lost 16.67%; followed by Champion Breweries, 15%; and NPF Microfinance, 14.36% on the back of profit-taking.
Source: Investdata Research
Technical Analysis of November market
NSEASI MONTHLY TIME FRAME
Bargain hunters and mixed sentiments have pushed the market into an uptrend and bull rally as the NGX composite index broke out various resistance levels and psychological lines of 42,412,47 to 44,000 level, after testing 40,068.70. It trades above Fibonacci retracement line of 61.68 on a low traded volume to form a double top chart pattern on a monthly time frame. This clearly signals an impending price correction, or profit-taking, before any retracement in the new month.
The ascending triangle chart pattern also supports continuation of the current trends or pullbacks depending on market forces and news in December.
Investors and traders should trade cautiously throughout the new month and beyond, by having good entry and exit strategies at all times.
We expect a bull run, as traders and investors interpret happenings globally, fixed income yield environment, earnings reports, and economic data, coupled with portfolio repositioning ahead of the December seasonal trends and expectorations. This is given that oil price in the international market has seemingly ignored the news of the fourth wave pandemic and smart money are trying to rotate their positions as the fixed-income instrument is less attractive at this point.
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 remain underpriced, while the dividend yields of major blue-chips continue to look attractive, despite the recent sideways movement.
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