Expect Mixed Trend, Window Dressing, As Investors Interpret Impact Of MPR Cut, Economic Data

Market Update for May 28

The composite All-Share index had a sharp mixed performance on the Nigerian Stock Exchange (NSE) to close Thursday’s trading session lower on a high volume amidst selling sentiments, on a day members of the Central Bank of Nigeria (CBN) Monetary Policy Committee (MPC) at their meeting expressed seeming hope that the country could be saved from recession after all.

The committee members voted to cut the benchmark Monetary Policy Rate by 100 points to 12.5%, a move that is expected to further crash rates in the money market and trigger an inflow of funds to equity assets. This is especially expected after the likely revaluation of company performances on the NSE at the end of Q2.

The cheaper funds arising from the CBN’s decision will help reduce the effect of the Coronavirus (COVID-19) pandemic on the economy, with the private sector able to access more funds at cheaper rates, while at the same time enjoying the moratorium (suspension of interest rates) on the various intervention funds for one year.

Blue chips and medium cap stocks running ahead of the market’s overall action gave up some points during session, with banking stocks suffered losses as a result of profit booking that halted six successive days of bullish run. The mixed performance of corporate earnings released during day’s trading did not support the market as most of the numbers came below expectations, especially MRS Oil that posted negative full-year results, just as some insurance companies that made their numbers available. Berger Paints’ earnings report was fair, but came with poor payout of 25 kobo, a situation that is expected to affect the company’s share price negatively.

The resurgence of slowdown in oil price recovery as a result of the ongoing cold war between US and China, has become a source of concern for investors, even as the positive and strong momentum in the healthcare sector was sustained as buying interests in the industry stocks remain high.

Meanwhile, Thursday’s trading opened slightly up in the morning and turned red between mid-morning and midday on a strong volatility that pushed the NSEASI to an intraday low of 25,131.33 basis points, from a high of 25,463.11bps. Thereafter, the index finished the session lower at 25,166.01bps on a flat but positive breadth.

Market technicals for the day were negative and mixed, as volume traded was lower than the previous session’s, with positive breath and selling pressure as revealed by Investdata’s Daily Sentiment Report, showing a ‘sell’ position of 90% and buy volume of 10%. Total daily transaction volume index stood at 1.16, while impetus behind the day’s performance stayed strong, with Money Flow Index reading 83.38points, slightly down from the previous 83.50ps, indicating gradual exit of funds from the market as traders cash out profit.

Index and Market Caps

At the end of the day’s trading, the NSE benchmark index shed 55.24bps, closing at 25,166.01ps, from the opening level of 25,221.25ps, representing a 0.22% drop, while market capitalisation lost N29bn, closing at N13.12tr, from its opening value of N13.14tr which represented a 0.22% value loss.

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Thursday’s downturn was driven by losses recorded in banking stocks like Guaranty Trust Bank, Zenith Bank, and Access Bank, as well as Flour Mills, and Ikeja Hotel, which impacted mildly on the NSE’s benchmark index, raising Year-To-Date loss to 6.24%, while market capitalization YTD decline stood at N32.12bn, representing a 0.04% drop from the year’s opening level.

Mixed Sector Indices

Performance indices across the sectors were mixed with the NSE Banking, Oil/Gas and Consumer Goods indexes sliding 2.79%, 0.63% and 0.07% down respectively, while the NSE Industrial Goods and Insurance closed 1.16% and 0.23% higher respectively.

Market breadth was flat and positive as advancers outpaced decliners in the ratio of 19:18, while activity in volume and value terms were down by 41.25% and 39.96% respectively, as investors exchanged 341.72m shares worth N3.36bn; from the previous day’s 581.61m units valued at N5.59bn. Volume was driven by trades in FBNH Holdings, Access Bank, Zenith Bank, UBA and Guaranty Trust Bank.

The best-performing stocks during the day were Cutix and May & Baker which gained 9.94% and 9.71%, closing at N1.88 and N3.39 per share respectively on full year earnings expectation and positive sentiment. On the flip side, ETI andIkeja Hotels lost 9.92% and 9.75% respectively, closing at N5.45 and N1.15 per share respectively on profit taking and market forces.

 Market Outlook

We expect the mixed trend to continue on profit-taking and last trading day of the month window dressing, as investors interpret the impact of the MPR cut from 13.5%, corporate earnings and economic data. The MFI is showing improved institutional investors activity in the midst of the oscillating oil prices and rising new cases of coronavirus as number of infected people cross 8000 and deaths above 230.

However, the market’s high dividend yield continues to attract buying interests, while more audited and unaudited corporate earnings will hit the market, going forward, despite the likely continuation of selloffs. Investors are buying to increase their positions in undervalued stocks ahead of dividend declaration and Q1 numbers. This is also against the backdrop of the fact that the capital wave in the financial markets may persist in the midst of relatively low-interest rates in the money market, high inflation, and unstable economic outlook for 2020.

Also, investors and traders are positioning amidst the changing sentiments in the hope of improved liquidity and positive economic indices that may reverse the current trend. We see investors focusing on the upcoming full-year earnings season, targeting companies with strong potentials to grow their dividend on the strength of their earnings capacity.

Again, the current undervalued state of the market offers 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 going forward.

This was noted in the 10 golden stocks and trading ideas for 2020, as discussed extensively during the Investdata 2020 Traders & Investors Summit held in Lagos.

 Also, traders and investors need to change their strategies, because of the NSE’s pricing methodology, the CBN directives, and their impact on the economy in the nearest future.

NB: The home study packs of our Invest 2020 Opportunities and Trade Ideas Summit, containing different Stocks for various investment objectives in 2020 and beyond are available. To obtain your pack send ‘Yes’ or ‘Stock’ to 08028164085, 08032055467, 08111811223 now.

Ambrose Omordion

CRO|Investdata Consulting Ltd





Tel: 08028164085, 08032055467

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