Market Update for June 22
It was a mixed session of selling pressure and buying interests on the Nigerian Exchange on Tuesday as the benchmark All-Share index closed lower for the second successive session on selloffs in highly capitalized stocks and profit taking in medium and low cap equities.
The oscillating trend as a result of sector rotation and corporate actions induced activities as players realigned their portfolios ahead of price adjustment and dividend payment by Airtel Africa and BUA Cement.
This mix trend in the key performance index is confusing at this point, but knowledgeable investors and traders should take advantage of the pullbacks to build wealth, even as trends remain trader-friend. Players should trade in stocks and sectors with positive trend that is clear and heading somewhere with good volume.
Oil price is hitting multi-year highs and the ongoing vaccination efforts waxing stronger across many climates that support global and domestic economic recovery expected to drive stock markets. We note that the earnings engines of many companies have, so far, improved during recession and post-recession as a result of the various Central Bank of Nigeria (CBN) interventions and the persisting stagflation in the midst of a weak economic recovery, which is why the Senate has summoned the Minister of Finance, Budget & National Planning to review the performance of the Economic Recovery & Growth Plan (ERGP), which was supposed to boost the nation’s GDP growth to 7%, but the country slipped into a recession last year.
Meanwhile, investors are looking forward to another earnings season on the Nigerian equity market to determine the state of quoted companies and by extension, their investments, considering the changing price patterns and trading environment to make informed decisions.
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Tuesday’s trading opened on the downside, following the price adjustment in BUA Cement for N2.07 per share dividend. This trend was sustained throughout the session on selloffs and profit bookings that pushed the NGX index to an intraday low of 37,847.07 basis points from its highs of 38,545.30bps on a low traded volume.
Market technicals were negative and mixed, as volume traded was higher than previous day’s in the midst of negative breadth and selling pressure as revealed by Investdata’s Sentiments Report showing 98% ‘sell’ volume and 2% buy position. Total transaction volume index stood at 0.96 points, just as momentum behind the day’s performance was relatively strong, as seen in the 57.19pts Money Flow Index, compared to previous day’s 64.85pts, indicating that funds left the market.
Index and Market Caps
At the end of Tuesday’s trading, the NGXASI lost 698.23bps, closing at 37,847.07bps, from an opening level of 38,545.301bps, representing a 1.81% decline, just as market capitalization lost N363.93bn, closing at N19.73tr, from its opening value of N20.07tr, also representing a 1.81% depreciation in value.
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The downturn was driven by selloffs and profit booking in high and low cap stocks like Airtel Africa, BUA Cement, Zenith Bank, FBNH, PZ, Presco, Stanbic IBTC, UACN, Flour Mills, Dangote Sugar and NASCON Allied, among others. This impacted negatively on Year-To-Date loss, raising it to 6.02%, while the drop in market capitalization YTD stood at N1.33tr, representing a 6.32% drop from its opening value for the year.
Mixed Sector Indices
Performance indexes across sectors were mixed, with the NGX Industrial Goods, Insurance and banking closing 1.13%, 0.39% and 0.07% lower respectively, while the NGX Oil/Gas led the advancers after a mild 0.05% gain, followed by Consumer Goods with 0.02% high.
Market breadth closed negative with 23 decliners and 18 advancers; while transactions in volume and value terms were up as investors exchanged 218.27m shares worth N2.73bn, compared to the previous day’s 209.21m units valued at N1.76bn. Volume was driven by trades in Transcorp, Vitafoam, Dangote Sugar FBN Holding and Access Bank.
Fidson Healthcare and Vitafoam were the best performing stocks for the day aftergaining 10% and 9.68%, closing at N5.06 and N13.60 per share respectively on market forces and earnings expectation. On the flipside, Airtel Africa and Mutual Benefits Assurance lost 10% and 7.32% respectively, closing at N678.00 and N0.38 per share, on selloff and profit taking.
Market Outlook
We expect a reversal after NGX index action has formed a ZIGZAG and wave pattern that signals an uptrend as we wait to confirm today on market forces as bargain hunters take advantage of pullback to reposition ahead of quarter end and earnings season. It is noteworthy that oil price continues its recovery at the international market with full-year and interim dividend possibilities around the corner.
We note that some stocks are trading within their buy ranges to become more attractive at this point for income investors and traders, even as the market anticipates positive news, while oil price continues to oscillate above $73pb to support global economic and stock market recovery across climates. We also expect the ongoing COVID-19 vaccination to support global and domestic economic recovery that will enhance the market and give direction.
The banking sector and others remain attractive on the back of the prevailing low prices, despite the Q1 mixed numbers.
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 ahead of interim dividend announcement. This is especially given that despite the seeming improvements, fixed income yield continues to offer negative real rate of return due to the galloping inflation.
However, the strong and faster recovery may continue, depending on market forces, going forward, as propelled by expected Q2 earnings reports, until the next MPC meeting in July.
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