Equities

Cautious Trading Yet, As Investors Await Major 2020Q1 Earnings, Data For Market Direction

Market Update for April 28

The mixed and volatile trend on the Nigerian Exchange continued at the midweek as the benchmark NGX All-Share index (NGXASI) closed again slightly lower on a less than average traded volume and negative breadth. This indicated profit booking among the four major sectors of the market in the midst of impressive Q1 numbers and expectation of major economic data like 2021 Q1 GDP, April Purchasing Manger Index and others.

This was despite the seeming mixed sentiments in the last two trading sessions, the impressive Q1 corporate earnings from United Capital, Fidson Healthcare, Livestock Feeds, Julius Berger, May and Baker, as well as Fidelity Bank, among others.

Consequently, with money flow index still looking up at above 60points, and oil price oscillating above $60 per barrel and forecast that it could hit $80pb in the second half of this year, the market is likely to close positively this month and quarter all things being equal. History is about to repeat itself again as revealed by investdata’s 20-year market data analysis which shows the month of April and Q2 as a period of position taking on the Nigeria equities market.

The market is still expecting Q1 results from the banking sector, especially from industry leaders such as Zenith Bank, Access Bank, FBNH and other movers and shakers that are yet to release their Q1 scorecards which are likely to support the ongoing recovery moves, in the face of profit taking and rising yields in the fixed income market. 

These Q1 numbers and unfolding events in the economy should provide a clear direction for the purpose of repositioning your portfolios ahead of qualification dates and subsequent results in this new financial year.

All things considered, Investdata urges investors to play the market wisely by letting investment goals guide their decisions, especially entry and exit strategies necessary to survive and profit from the expected new trend. Be guided also by current price patterns and money flow index now supporting a trend continuation as funds continue entering the market, just as we expect Thursday trading to confirm direction.

Meanwhile, midweek’s tradingstarted on the downside and oscillated for the rest of the session on profit booking and reaction to the positive earnings that pushed the composite index to an intraday low of 39,268.19 basis points, from its high of 39,338.82bps. Thereafter, the index closed slightly below the opening level at 39,303.09bps.

Midweek’s market technicals were mixed and weak, with volume traded higher than previous day’s in midst of breadthfavoring thebears on mixed sentiments, as revealed by Investdata’s Sentiments Report showing 49% ‘buy’ volume and 51% sell position. Total transaction volume index stood at 0.80 points, just as impetus behind the day’s performance was relatively strong. Money Flow Index was looking up to 63.61pts, from the previous day’s 62.48pts, indicating that funds entered the market, despite closing flat.

Index and Market Caps

The key performance index, at the end of day’s trading, shed a marginal 2.39ps, closing at 39,303.09bps after opening at 39,305.48bps, representing a 0.01% drop, just as market capitalization lost N2.06bn, closing at N20.57tr, also representing 0.01% value loss. 

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Wednesday’s downturn was due to profit taking in UACN, PZ Cussons, Ardova, Guinness, Custodian Invest, Access Bank, Guaranty Trust Bank, FBNH, International Breweries, Neimeth Pharmaceuticals and FTN Cocoa, among others. This impacted mildly on Year-To-Date loss, which increased to 2.40%. The decline in market capitalization also increased YTD loss to N590.10bn, representing a 2.32% drop below its opening value for the year.

Bearish Sector Indices

Performance indexes across the sectors were down, except for NSE Oil/Gas that closed 5.26% higher, while Insurance led the decliners after shedding 3.23%, followed by Banking, Consumer and Industrial goods with 0.69%, 0.64% and 0.48% lowers.

Market breadth turned negative, as decliners outnumberedadvancers in the ratio of 22:19; with transactions in volume and value terms were mixed as stockbrokers crossed 259.51m shares worth N1.91bn, compared to the previous day’s 252.57m units valued at N1.77bn. Volume was boosted by trades in FBNH, Transcorp, Zenith Bank, Sovereign Trust Insurance and United Capital.

Consolidated Hallmark Insurance and Portland Paints were the best performing stocks, gaining 10% and 8.33% respectively, closing at N0.33 and N2.60 per share on market forces and sentiment. On the flip side, FTN Cocoa and Neimeth Pharm lost 10% and 8.95% respectively, closing at N0.36 and N1.78per share, on selloffs and market forces.

Market Outlook

We expect the mixed and positive trend to continue as investors continue reacting positively to impressive Q1 numbers in expectation of more earnings reports in the market this period besides the profit taking, even in the face of rising virus cases across the globe and high yields in fixed income space. We also expect continued portfolio realignments on the strength of the earnings performance released so far, and ahead of economic data like the 2021Q1 GDP report, and Purchasing Managers’ Index, among others.

Also, the market has moved out of its trading range, waiting to breakout the next resistance level of 39,412.15bps, while trading above the 14 and 20-Day Moving Average. Note that the market may discount the prospects of high cap companies and some blue chip stocks, ahead of their 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 2020 full numbers and expected 2021 Q1 earnings reports, until the next MPC meeting in May.

The NSE’s index action and indicators are heading in the same direction   on a low traded volume and positive buying 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

info@investdata.com.ng

ambrose.o@investdataonline.com

ambroseconsultants@yahoo.com

Tel: 08028164085, 08032055467

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