Caution Still, As Investors Realign Portfolios, Take Profit Ahead Of Year-end

Market Update for December 9

The nation’s equity market maintained its bearish mode, closing flat for the second successive session on cautious trading and profit booking that reflected in the day’s low traded volume.

The current trading pattern is expected at this time, being the early stages of the traditionally mixed year-end season on the stock market, which signal that Santa Claus rally is underway, with bargain hunters and smart money making last minutes moves ahead of year-end. This is happening against the backdrop of the record low interest rates and yields, even as COVID-19 vaccines already discovered near the distribution phase.

Nevertheless, Santa Claus rides on year-end bookings are two major seasons likely to support an uptrend in this final month, on the strength of which we advise cautious among players as they take advantage of these pullbacks.

It is important to note analysts’ belief that the Nigerian economy would likely rebound and begin a growth trajectory in Q1 of 2020, which the market would respond sharply to economic indicators/policy changes than it did during the just concluded earnings season.

Meanwhile, midweek’s trading opened marginally down and was sustained throughout the session despite oscillating on selloffs and cautious trading, pushing the NSE’s All-Share index to an intraday low of 35,001.14 basis points, from its high of 35,039.80bps, before closing slightly below its opening level at 35,021.26bps.

Market technicals were negative and weak, with volume traded lower than the previous day in the midst of breadth that favoured the bears on a mixed sentiment as revealed by Investdata’s Sentiments Report showing 52% ‘buy’ volume and 48% ‘sell’ position. Total transaction volume index stood at 0.57 points, just as the impetus behind the day’s performance was relatively strong with the Money flow index looking down to read 48.43pts, from the previous day’s 55.18pts, an indication that funds left the market as profit taking persist. 

Index and Market Caps

At the end of Wednesday’s trading, the benchmark index slipped by a marginal 12.48bps, closing at 35,021.26bps, representing a 0.04% slide having opened at 35,033.74bps; just as market capitalization fell by  N6.52bn to N18.3tr, after opening at N18.31tr, which also represented 0.04% value loss.

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Wednesday’s pullback resulted from selloffs and profit taking in stocks likes UBA, FBNH, Ardova, Africa Prudential, Fidson Healthcare, and United Capital, among others. This mildly dragged Year-To-Date gain down to 30.47%, while Market capitalization YTD gain stood at N5.35tr, representing a 40.95% growth above the opening value.

Bearish Sector Indices

Performance indexes across sectors closed lower, led by the NSE Insurance which lost 1.04%, followed by the NSE Oil/Gas, Banking and Consumer goods that were down by 0.37%. 0.07 and 0.05% respectively, while NSE Industrial goods closed flat.

Market breadth remained negative, as decliners outweighed advancers in the ratio of 21:13, while activities in volume and value terms were mixed, with volume traded declining by 7.76%, while stockbrokers traded 283.09m shares, compared to previous day’s 306.92m units. Transaction improved by 4.46% to N3.42bn, from the previous day’s N3.27bn. Volume was driven by trades in FBNH, Guaranty Trust Bank, Aiico Insurance, Zenith Bank and Mutual Benefits Assurance.

FTN Cocoa and Union Diagnostic were the best performing stocks, gaining 8.82% and 8% respectively at N0.37 and N0.27 per share on the back of market forces. On the flip side, Royal Exchange Assurance and Ardova lost 8.70% and 8.55% respectively at N0.21 and N13.20 per share, also on market forces and profit taking

Market Outlook

We expect the current trend to continue in the midst of cautious trading, portfolio diversification and profit taking, ahead of the seasonal trends, just as the market awaits inflow of funds from alternative investment and adjustment in CBN policies. Behind this correction lies buy opportunities for discerning traders and investors.

Also important is the fact that technical indicators reveal overbought on the weekly and daily chart, while RSI reads 70 points and above, a situation that supports the likelihood of another correction.

However, the strong and faster recovery may continue, depending on market forces, going forward, as propelled by the quality of Q3 earnings presented, especially by the tier-1 banks, even as analyses of numbers released so far have helped repositioning of investors’ portfolios on the strength of sectoral and company’s performances.

The NSE’s index action and indicators are looking up in the same direction on a very high traded volume and positive buying sentiments.

Again, 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 rest of the year.

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Ambrose Omordion

CRO|Investdata Consulting Ltd

Tel: 08028164085, 08032055467