Huge Inflow Pushes NGSE Index To 31.67% YTD, But Correction Imminent

Market Update for November 12

Equity prices on the Nigerian Stock Exchange (NSE) gallop on, Thursday, as the bull-momentum waxed even stronger, pushing the All-Share Index up to a new high as it broke out the bourse’s 5% circuit for the first time since 2016 when it was introduced.

The breaker was therefore triggered during the session to accommodate the day’s rally amidst the massive demand for stocks which has the equity market the lone investment window trending up, attractive, while at the same time staying above the 13.71% domestic national inflation rate.

The day’s gain lifted the NSE’s key performance index to a year-to-date growth of 31.67%, despite the resurgence of the deadly Coronavirus outbreak now in its second wave, and lingering economic downturn that has left more people gasping for breath.

The current positive momentum has been enabled by the high inflow of funds, after recent monetary policy actions forced Treasury Bills rate further down to 0.30% at the midweek auction, pushing funds into the equity space. Price correction and pullbacks are imminent, irrespective of the factors driving the rally over the short-term, even as investors globally are keenly watching the international oil markets, while awaiting further details of the vaccine in the works for coronavirus treatment.

These notwithstanding, there is hope that the expected release of Tier-1 bank earnings may sustain these equity prices and trend over another few weeks. But then also, market players should trade cautiously, as more stocks hit new 52-week highs on a higher traded volume.

Thursday’strading opened in the green, before the spike in demand for shares between mid-morning to midday that resulted in the NSE’s triggering of its Circuit Breaker beyond the set threshold of 5%.

In a statement on Thursday, the NSE’s management announced the kick-off of a market-wide circuit breaker on “Thursday, November 12, 2020, at 12:55p.m., when the NSE All-Share Index (NSE ASI) rose beyond the set threshold of 5%, triggering a 30-minute trading halt of all stocks. This was the first time that the circuit breaker had kicked in since its introduction in 2016.

“The Circuit Breaker protocol was triggered by the increase of the NSE ASI from 33,268.36 to 34,959.39. The market reopened at exactly 1:25p.m. with a 10-minute intraday auction session, before resuming continuous trading till the close of the day at 2:30p.m.

“During the halt of trading, no order could be placed until trading resumed. However, existing orders could be withdrawn or cancelled but could not be modified. Trading halts did not affect the clearing, settlement, and depository operations for matched trades, as these functioned as normal. Furthermore, all existing orders keyed in prior to the trading halt were re-activated and were matched upon resumption of trading,” it stressed.

The increased buying interest across all class of stocks pushed the composite index to breakout two psychological levels of 34,000 and 35,000 basis points in one day, touching an intraday high of 35,343.46bps where it closed for the day, from its low of 33,291.27bps on a huge traded volume and strong buying pressure.

Market technicals for the day were positive and strong as volume traded was higher, when compared to the previous session in the midst of positive breadth and sentiment, as revealed by Investdata’s Sentiment Report showing 100% ‘buy’ volume. Total transaction volume index stood at 2.47 points, just as the energy behind the day’s performance was strong, with Money Flow Index staying at 100 points. This is an indication that funds entered the market in general.

Index and Market Caps

The All Share index, at the end of Thursday ’s trading, soared higher by a significant 2,074.10bps, closing at 35,342.466bps, representing a 6.23% growth, after opening at 33,268.36bps. Market capitalization rose by all of N1.08tr to a record high of N18.47tr from an opening value of N17.38tr, which also represented a 6.23% gain in investors’ portfolios.

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The day’s uptrend was propelled by increased buying sentiments in heavyweight stocks like Dangote Cement, Nestle, Airtel, MTNN, BUA Cement, GTBank, and Zenith Bank, as well as Dangote Sugar, Cadbury, and GSK, among others. These raised Year-To-Date gain to 31.67%, while Market capitalization YTD returns climbed to N1.53tr, representing a 37.81% rise above the year’s opening value.

Bullish Sector Indices

All the sectorial performance indexes were bullish, led by the NSE Industrial Goods index which gained 8.65%; followed by the NSE Banking, 7.94%; while Consumer Goods, Insurance, and Oil/Gas closed 6.12%, 4.78% and 1.97% higher respectively.

Market breadth remained positive as advancers outweighed decliners in the ratio of 68:8, while transactions in volume and value terms jumped by 39.02% and 91.95% respectively as investors exchanged 1.19bn share shares worth N17.45bn, compared to the previous day’s 858.16m units valued at N9.05bn. Volume was driven by trades in Zenith Bank, FBNH, Access Bank, UBA and Fidelity Bank.

Presco and Airtel Africa were the best performing stocks, gaining10% each, closing at N79.75 and N451.20 per share on the back of their impressive earnings and market trend. On the flip side, GSPEC plc and Eterna lost 9.89% and 9.86% respectively, closing at N4.19 and N4.57 each respectively, on market forces and profit booking.

Market Outlook

Profit taking is underway, as technical indicators revealed overbought on a monthly, weekly and daily chart, while RSI read 96.16 points, a situation that signals a possible reversal of trends, although the strong and faster recovery may continue, depending on market forces at the Friday’s session, and going forward. This will depend on the quality of Q3 score-cards presented, especially by the tier-1 banks, even as analyses of numbers released so far have helped repositioning of investors’ portfolios on the strength of sector and company’s performances.

The NSE’s index action and indicators are looking up in the same direction on a very high traded volume and positive buying sentiments.

Again, 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 rest of the year.

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