Market Update for May 4
The Nigerian Exchange (NGX) reopened for trading activities Tuesday, after Monday’s public holiday to celebrate the workers’ day, recording a marginal decline in the benchmark index, amid mixed sentiments as investors reacted mildly to outstanding Q1 earnings results released. The session also witnessed price adjustments, while profit taking hit major sectors of the market and high cap stocks in particular, dragging the market down in the process.
Market technicals at the end of trading were mixed as seen in the higher volume traded than the previous session on a positive breadth, just as there was selling pressure as revealed by the daily sentiment report. At the end of trading also, money flow index on a daily time frame looked up, indicating that funds still entered the market despite the profit booking from the recent rally.
Meanwhile, we expect the mixed trend and waves to continue, as investors and traders continue to interpret and analyze the corporate earnings releases, taking note of qualification and markdown dates for dividends in the new month. This follows from the knowledge that portfolio repositioning and rebalancing have continued on the strength of the Q1 numbers, the ongoing economic recovery and sector rotation for higher returns and defensive stocks. Already, we know that the earnings so far have given an insight into what should be expected, going into the future.
All things being equal, investors and traders should target companies whose earnings growth, quality and value, meet Investdata’s Earnings Gauges, while investing wisely, allowing investment goals guide their decisions, especially entry and exit strategies necessary to ensure they not only survive, but 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 enter the market. We equally expect midweek’s trading to confirm market direction going forward, due to very high volume traded on Tuesday.
Meanwhile, Tuesday’s trading opened slightly on the upside before pulling back and oscillating on buying interests on the back of the impressive earnings and profitbooking in MTNN, just as the share prices of Lafarge Africa and Linkage Assurance were adjusted for dividends and bonus declared by their directors. These pushed the composite NGX All-Share Index to an intraday low of 39,783.59 basis points, from its high of 39, 875.66bps, after which the index closed below its opening level at 39,801.78bps on a very high traded volume.
Market technicals were positive and mixed, with volume traded higher than previous day’s in the midst of breadth that favoured the bulls on a selling pressure, as revealed by Investdata’s Sentiments Report showing 80% ‘sell’ volume and 20% buy position. Total transaction volume index stood at 1.44 points, just as momentum behind the day’s performance was relatively strong with Money Flow Index reading 74.53pts, from the previous day’s 68.08pts, indicating that funds entered the market, despite the slowdown.
Index and Market Caps
At the end of Tuesday’s trading also, the key performance index shed 32.64ps, closing at 39,801.78bps after opening at 39,834.42bps, representing a 0.08% drop, just as market capitalization fell by N17.04bn, closing at N20.83tr from an opening value of N20.85tr, which also represented 0.08% value loss.
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The day’s downturn resulted from profit taking in MTNN, Zenith Bank, UBA, Lafarge Africa, Oando, Dangote Sugar Linkage Assurance and Africa Prudential, among others, which impacted slightly on Year-To-Date loss, raising it to 1.16%. The decline in market capitalization YTD loss increased to N226.92bn, representing a 1.07% drop below its opening value for the year.
Bearish Sector Indices
Performance indexes across the sectors were down, except for the NGX Consumer Goods that closed 0.76% higher, while Insurance led the decliners aftershedding 1.27%, followed by Industrial goods, Banking and Oil/Gas with 0.57%, 0.32% and 0.13% lower respectively.
Market breadth was positive, as advancers outnumbered decliners in the ratio of 24:17; with activities in volume and value terms rising, as investors traded 426.51m shares worth N4.65bn. Volume was boosted by trades in FBNH, Access Bank, Zenith Bank, Lafarge Africa, and FCMB.
Lasaco Assurance and Neimeth Pharm were the best performing stocks, gaining 9.86% and 9.83% respectively, while closing at N1.56 and N1.90 per share on market forces and improved earnings. On the flip side, Linkage Assurance and Regency Insurance lost 13.11% and 9.09% respectively, closing at N0.52 and N0.30per share, on price adjustment and profit taking.
Market Outlook
We expect the mixed trend to continue on profit taking and portfolio adjustment on the strength of the numbers released recently amidst the rising infection rate of the novel coronavirus cases across the globe and the high yields in the fixed income market. We also expect economic data like the 2021Q1 GDP report, April Purchasing Managers’ Index and inflation among others to reveal the state of the economy and give direction. The banking sector remains attractive on the back of the prevailing low prices, despite the Q1 mixed numbers.
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
ambrose.o@investdataonline.com
Tel: 08028164085, 08032055467
