Market Update for May 20
The nation’s equity market sustained its bearish run on Thursday, as the key performance index took a further dip on at a reduced momentum, as bargain hunters and discerning investors took advantage of the ongoing pullbacks to position in fundamentally sound stocks offering high margins of safety.
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The NGX index action has resisted decline as reflected in the candlestick at the end of Thursday’s trading, signaling that a rebound is underway as indicated by the money flow index, on the strength of portfolio readjustments. This is further stressed by the continued sector rotation, as bargain hunters cash in on the pullbacks to position in the market.
The low traded volume and volatility in the last two trading sessions indicate that traders have adopted a caution outlook ahead of next week’s Central Bank of Nigeria (CBN) Monetary Policy Committee meeting. This is a sign that investors might be buying into the outcome of the meeting and outlook, if interest rate is maintained to see if the new trend of inflation would be sustained in the subsequent months.
Also, the NGX index broke down the strong support level of 38,309.63bps and tested 38,284.56 before retracing up to 38,328.13bps on a low traded volume and slightly negative breadth. Investors should, therefore, wait to confirm the new trend by focusing on the sectors with strong potential to grow their earnings performance and that have high upside price rally outlook. Here players should target companies with earnings growth, quality and value that can match Investdata’s Earnings Gauges.
Thursday’s trading started on the downside and was sustained for the rest of the day despite oscillating on the strength of position and profit taking among the high and medium cap stocks that pushed the composite All-Share index to an intraday low of 38,284.56 basis points from its highs of 39,453.56bps, and thereafter closing below its opening level at 38,328.13bps.
Market technicals were weak and mixed, as volume traded was slightly higher than previous day’s in the midst of almost a flat breadth onmixed sentiment as revealed by Investdata’s Sentiments Report showing 76% ‘sell’ volume and 24% buy position. Total transaction volume index stood at 0.57 points, just as energy behind the day’s performance was relatively weak, as Money Flow Index looked up, reading 46.98pts, from the previous day’s 45,84pts, indicating that funds entered the market, despite closing down.
Index and Market Caps
At the end of the trading, the benchmark index NGXASI shed 116.96bps, closing at 38,328.13bps from an opening figure of 38,446.09as representing a 0.30% drop, just as market capitalization fell by N61bn, closing at N19.78tr, from its opening value of N20.04tr, also representing a 0.30% in value loss.
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The session’s downturn resulted from selloffs and profit taking in Dangote Cement, GSK, UBA, Access Bank, Unilever, Africa Prudential, and United Capital, among others. This impacted negatively on Year-To-Date loss, increasing it to 4.82%, while the drop in market capitalization YTD increased to N1.61 trillion, representing a 6.20% below its opening value for the year.
Mixed Sector Indices
Performance indexes across the sectors were mixed, as the NGX Consumer Goods, Insurance and Energy closed 0.39%, 0.35% and 0.05% higher respectively, while NGX Industrial Goods led the decliners after losing 0.89%, followed by Banking with 0.11% lower.
Market breadth remained negative, as decliners outnumbered advancers in the ratio of 19:18; just as activities in volume and value terms were mixed as volume was up by 6% to 157.25m shares, as against the previous day’s 153.54m units. Transaction value was down by a sharp 35% to N1.74bn from midweek’s N2.44bn. The day’s trading was boosted by Zenith Bank, Access Bank, FBNH, GTBank and Verita Assurance.
Trans nationwide express and Prestige Assurance were the best performing stocks, gaining 9.88% and 6.56%, while closing at N0.89 and N0.49 per share respectively on market forces. On the flip side, SUNU Assurances and Royal Exchange lost 9.62% and 9.33% respectively, closing at N0.47 and N0.68per share, on profit taking
Market Outlook
We expect the losing momentum on profit taking and selloffs to slow down, in the midst of Q1 GDP expectation and outcome of next week’s MPC meeting, despite the rising infection rate of the novel coronavirus across the globe and the high yields in the fixed income market. We also expect the ongoing vaccination to support global and domestic economic recovery that will support the market and give direction. The banking sector and others remains attractive on the back of the prevailing low prices, despite the Q1 mixed numbers.
Also, the market just started a new downtrend as it trades below the 14 and 20-Day Moving Average. Note that the market may discount the political and insecurity challenges headlines, ahead of half-year earnings reports.
However, the pullbacks offer bargain hunters and income investors fresh opportunities to reposition in high dividend yields and undervalued stocks, while looking out for quarterly numbers that would support recovery. This is based on the fact that the rising 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. This is especially given the rising oil prices that have so far supported the economy and equity market, despite the seeming improvement in the fixed income yield which had remained at negative real rate of return due to the subsisting high inflation.
However, the strong and faster recovery may continue, depending on market forces, going forward, as propelled by Q1 earnings reports and expected march full year audited accounts.
The NGX’s index action and indicators are heading in the same direction on a low traded volume and mixed sentiments in the midst of rising yield in bond and TB.
Also, the current undervalued 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 in the new year.
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Ambrose Omordion
CRO|Investdata Consulting Ltd
ambrose.o@investdataonline.com
Tel: 08028164085, 08032055467
