Expect Mixed Trend, Ahead Of Q1 Earnings Inflow, Rising Dividend Yields, Rebalancing

Market Update for April 6

Profit taking and selling pressure on the Nigerian Stock Exchange continued Tuesday after the Easter holidays and in the midst of 2020 full-year earnings reporting season and dividend news, among others. It is also ahead of Q1 earnings season and corporate action dates of many companies.

Investdata believes that this is the best month and quarter to buy stocks, based on the 20-years market data of the NSE.

Already, and in preparation to usher in the Q1 earnings reporting season, many companies have notified the exchange and investors of their board meetings and closed periods when their directors would approve their accounts. Similarly, companies with March year-end accounts are expected to release their unaudited last quarter reports this month, in addition to expected economic data like the Consumer Price Index also know as inflation rate for March, as well as the Q1 GDP numbers for 2021 from the National Bureau of Statistics; and Purchasing Managers’ Index (PMI) by the Central Bank of Nigeria, which would together reveal the state of the economy and provide direction as to where it is headed.

The NSE’s composite All-Share index, on Tuesday, witnessed another bearish outing on a low traded volume and negative breadth, resulting in the fourth consecutive session of bear transition, as another correction and pullbacks resurfaced after the short-lived rebound. Notice that investors have continued to reshuffle and realign their portfolios with eyes on yield movement in fixed income market and dividend yields with the market is likely to do well in this quarter and year, given the discovery of the vaccine for the COVID-19 pandemic, a situation expected to drive global and local economic recovery in the midst of oscillating oil price depending on countries and states policy direction.

Even then, the prevailing stagflation caused by soaring food prices in the Nigerian economy is likely to threaten investment returns in financial markets as planting season, this is made worse by the hike in pump price of premium motor spirit or petrol, as well as the spate of insecurity across the country. All of these continue to drive inflation rate northward and the equity market remains the only hedge, looking at the prevailing dividend yield and possibility of a 10% daily price movement as cushion.

That notwithstanding however, investors should target fundamentally sound stocks with positive technicals, which is why we urge caution around the market place, by allowing investment objectives, as well as entry and exit strategies to guide them, so as to avoid being trapped in any trade.

Meanwhile, Tuesday’s trading opened on the downside and oscillated in the mid-morning to late afternoon on buying interests in low priced equities and selloffs in blue chip stocks that pushed the benchmark index to an intraday low of 38,766.61 basis points from its highs of 38,916.74bps, before closing below it opening point.

Index and Market Caps

At the close of the trading session, the NSEASI shed 150.13bps, closing at 38,766.61bps after opening at 38,916.74bps, representing a 0.39% drop. Similarly, market capitalization fell by N78.53bn, closing at N20.28tr, from previous day’s N20.36tr, which also represented 0.39% value loss.

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Tuesday’s downtrend resulted from selloffs in building material makers- BUA Cement, and Lafarge Africa; financial powerhouses- Guaranty Trust Bank, Zenith Bank, UBA; as well as Guinness, and UACN; among others. This impacted negatively on Year-To-Date loss, pushing it to 3.73%, just as market capitalization loss stood at N765.52bn, or 3.64% below its opening value for the year.

Bearish Sector Indices

The performance indexes across the sectors were red, led by the NSE Banking which lost 1.67%, followed by Insurance, Industrial goods, consumer goods and energy with 0.53%, 0.52%, 0.39% and 0.11% lower.

Market breadth turned negative from the previous session, as decliners outnumbered advancers in the ratio of 21:14; just as activity in volume and value were mixed after investors traded 224.59m shares worth N2.14bn.

Eterna and Linkage Assurance were the best performing stocks of the session, after gaining 9.91% and 9.72%, while closing at N5.99 and N0.79 per share respectively on market forces and bonus reward. On the flip side, MRS Oil and Alex lost 9.92% and 9.88% respectively, closing at N10.90 and N7.30 per share, on selloffs

Market Outlook

We expect the mixed trend to continue as Q1 corporate earnings start to hit the market in the face of rising dividend yields and portfolio repositioning ahead of economic data this month. Also, the pullbacks offer bargain hunters and income investors another opportunity to reposition in high dividend yields and undervalued stocks, while more companies release their full-year and quarterly 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 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





Tel: 08028164085, 08032055467

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