Market Update for March 11
The oscillatory movement and correction on the Nigerian Stock Exchange continued on Thursday as the key performance index closed lower, as some high cap stocks that account for a princely 70% of the market capitalization suffered losses, dragging the market down on a low traded volume and positive breadth.
Consequently, this short-lived the gain recorded on the previous day, even as we believe the correction mode of the market is not over yet, following which investors should use the ongoing pullbacks to build positions in value and growth stocks. Of prime interest should be stocks with strong earnings growth capacity and bright prospects in the future, especially as the ongoing earnings reporting season has offered an insight into what should be expected in different sectors and companies.
The high profile names and dividend paying stocks which had suffered year=to-date and 52-week slide of 20% and above during these selloffs are becoming attractive to consider for different investment objective. Invesdata still believes that the recent rise in treasury bills and bonds yields are not enough to scare investors away from the equity market at this time when economic recovery is ongoing, even as oil price sells farther above the nation’s budget benchmark price. This is expected to support government spending and project execution, by reducing the projected deficit for the year that would be financed through the capital market, as well as ways and means through the central bank.
The NSE index’s action trading below 39,000 basis points support level, is a sign of volatility towards the next one, sported around 38,464.00bps. Should the index break this point, the next visible support is far down 34,396.3 points, unless there is positive news or favorable policies to boost market liquidity and sentiment.
Note, therefore, that technically, the ongoing negative move is best described as a market correction, even as the consistent downtrend could be linked to the sharp rally recorded in 2020, ahead of the full-year earnings season and Q1 numbers, coupled with favorable and positive economic indices. Market rebound can coexist with the uptrend in fixed income yields, following which we advise investors to play dividend stocks for reduced investment risk around the market.
Thursday’s trading opened slightly on the downside and oscillated on buying interests in medium and dividend-paying stocks, and selloffs in high cap stocks and low priced equities. This situation pushed the NSE’s index to an intraday low of 38,666.54 basis points from its highs of 38,937.07bps, before closing below its opening point at 38,687.17bps.
Market technicals were weak and mixed, with volume traded lower than previous day’s in the midst of breadth favoring the bulls on a selling pressure as revealed by Investdata’s Sentiments Report showing 15% ‘buy’ volume and 85% ‘sell’ position. Total transaction volume index stood at 0.39 points, just as momentum behind the day’s performance remained weak, with Money Flow Index looking up slightly at 24.78pts, from the previous day’s 24.11pts, indicating that some funds entered the market, despite closing lower.
Index and Market Caps
At the end of Thursday trading, the composite index lost 234.08bps to close at 38,697.17bps after opening at 38,931.25bps, representing a 0.60% decline. Similarly, market capitalization fell by N122.47bn, closing at N20.25tr, from previous day’s N20.37tr, which also represented 0.60% depreciation in value.
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Thursday’s downturn was driven by the selloffs in Dangote Cement, Zenith Bank, United Capital, UBA, Dangote Sugar, AXA Mansard and Jaiz Bank, among others. This impacted negatively on Year-To-Date loss which reduced to 3.91%, just as market capitalization loss increased to N810.21bn, or 3.84% below its opening value for the year.
Mixed Sector Indices
Performance indexes across sectors were mixed, as the NSE Insurance, Consumer goods and Banking closed higher by 0.69%, 0.42% and 0.01% respectively, while NSE Industrial goods index led the decliners, after losing 1.70%, followed by Oil/Gas 0.03% respectively lower.
Market breadth turned positive, as advancers outnumbered decliners in the ratio of 23:11; just as transactions in volume and value terms decline, as players traded 169.35m shares worth N2.12bn. Volume was driven by transaction in AIICO, UBA, Zenith Bank, AXA Mansard Insurance and Jaiz Bank.
The best performing stocks for the session were Smurfit and International Breweries, gaining 10% and 9.89% respectively, closing at N0.22 and N5.00 per share respectively on market forces. On the flip side, Africa Alliance Insurance and Sovereign Trust Insurance lost 8.33% and 7.69% respectively, closing at N0.22 and N0.26 per share, on selloffs and profit taking.
Market Outlook
We expect the mixed trend to continue as more corporate earnings hit the market in the face of rising fixed income market yields, oil prices and high dividend yields during this earnings season. Also, the pullbacks offer bargain hunters and income investors another opportunity to reposition, while more companies release their full-year numbers to 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 expected 2020 full earnings reports, until the next MPC meeting in March.
The NSE’s index action and indicators are in divergence on a low traded volume and positive buying sentiments.
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