Equities

Caution Still On NGX As Investors Await Interim Div Banks, July CPI, Q2 GDP

Market Update for August 4

Positive outing continued on the Nigerian Exchange at the midweek but on a less magnitude and momentum to extend the bull-run for the fourth consecutive session as repositioning and investors study the corporate earnings released so far, while awaiting those of dividend-paying banks, and ahead of major macroeconomic data. These are likely to trigger more buying interests, especially for banking stocks if the numbers beat expectations.

Meanwhile, the NGX index action seems to be struggling after breaking out the recent resistance level on a low traded volume and sluggish uptrend as observed at the end of midweek’s trading, after more than 96% of the companies with December year-end had made their half-year financials available to the market. So investors digest these numbers and sector rotation continue, market players should not panic but trade with caution and build their tent in fundamentally sound stocks with growth prospects.

This, they can do by keeping their earnings power in the up direction to support their future price.  Growth and value stocks should be the attraction at the market arena now, considering the strength of the numbers emanating from the companies and what is happening in the FX market because some companies are net beneficiaries of this latest Central Bank of Nigeria policy.

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Meanwhile, midweek’s trading opened on the downside and oscillated, before rebounding by the afternoon, on position taking in banking stocks and other high priced equities that pushed the benchmark index to an intraday high of 38,931.12 basis points from its lows of 38,894.15bps, before closing above its opening level at 38,927.83bps.

Market technicals were mixed and weak, while volume traded was lower than that of the previous day, in the midst of breadth favouring the bears on high buying sentiments as revealed by Investdata’s Sentiments Report showing 91% ‘buy’ volume and 9% sell positions. Total transaction volume index stood at 0.87 points, just as the energy behind the day’s performance was relatively strong, as seen in the 69.73pts Money Flow Index, compared to the previous day’s 64.15pts, confirming the inflow of funds into the market as corporate earnings beat expectation.

Index and Market Caps

At the end of Wednesday trading, the key performance index NGXASI, inched up by 9.84 basis points, closing at 38,927.83bps, from an opening level of 38,917.99bps, representing a 0.03% up, just as market capitalization rose by N5.13bn, closing at N20.28tr, from its opening value of N20.28tr, also representing a 0.03% value gain.  

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Midweek’s marginal upturn was driven by price appreciation in high and medium cap stocks like Presco, Zenith Bank, Lafarge Africa, Vitafoam, and Access Bank, among others, which impacted mildly on Year-To-Date loss, reducing it to 3.33. The loss in market capitalization YTD also dropped to N774.74bn, representing a 3.65% decline from its opening value for the year.

Mixed Sector Indices

Performance indexes across sectors were mixed, as the NGX Banking and Industrial Goods closed 0.56% and 0.04% higher respectively, while NGX Energy Index led the decliners, after losing 0.63%, followed by Insurance and Consumer Goods with 0.18% and 0.04% respectively.

Market breadth remained negative as losers outnumbered gainers in the ratio of 19:16, while activities in volume and value terms were down as investors exchanged 206.29m shares worth N1.07bn, compared to the previous day’s 231.45m units valued at N2.13bn. Volume was boosted by trades in Sterling Bank, Transcorp, UBA, Wema Bank, and AIICO Insurance

The day’s best-performing stocks were Cutix and Veritaskap after gaining 10% and 8.7%, while closing at N5.50 and N0.25 per share respectively on the impact of the proposed one-for-one bonus shares and market forces. On the flip side, Sovereign Trust Insurance and Regency Insurance lost 7.14% and 6.67% respectively, closing at N0.26 and N0.42 per share, on profit-taking.

Market Outlook

We expect a mixed trend in the face of cautious trading as candlestick formation at the end of midweek’s session signals a bearish reversal that we need to confirm today as the market opens, while portfolio reshuffling and interpretation of the corporate earnings are ongoing ahead of the July inflation, Q2 GDP and results from interim dividend-paying banks. Also, investors are still observing the interplay of forces following recent developments in the FX market with the decision to stop the sale of US$ to Bureaux De Change operators immediately. The day’s mixed volume suggests that smart money is taking advantage of the oscillating trend and relatively low prices to reposition. It is noteworthy that oil price continues to oscillate in the international market; even as corporate actions, with interim dividend possibilities around the corner.

We note also that some stocks are trading within their buy ranges to become more attractive at this point for income investors and traders, even as the market anticipates positive news, while oil price continues to oscillate above $70pb to support the global economy and stock market recovery across climates. We also expect the ongoing COVID-19 vaccination to support global and domestic economic recovery that will enhance the market and give direction.

The banking sector and others remain attractive on the back of the prevailing low prices, despite the mixed half-year earnings.

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 ahead of interim dividend announcement. This is especially given that despite the seeming improvements, fixed income yield continues to offer a negative real rate of return due to the galloping inflation.

However, the strong and faster recovery may continue, depending on market forces, going forward, as propelled by expected Q2 earnings reports, until the next MPC meeting in the coming week.

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Ambrose Omordion

CRO|Investdata Consulting Ltd

info@investdataonline.com

info@investdata.com.ng

ambrose.o@investdataonline.com

ambroseconsultants@yahoo.com

Tel: 08028164085, 08179547605

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