Indecision Continue On NGSE, With Investors Unwilling To Buy At Current Prices

Market Update for June 23

The Nigerian equity market on Tuesday maintained its high volatility, but resisted decline, helped by price appreciation of MTN Nigeria and Flour Mills, closing flat as many market players continued to sit on the fence, watching events unfold, especially against the backdrop of the rising cases of the novel coronavirus (COVID-19) across the globe, as well as in Nigeria.

This, among others, has remained a source of grave concern among investors and traders, as witnessed in the past three week of sideways trending and consolidation range in the market which has left many investors trapped in various positions.

The continued outflow of funds from the market as revealed by the Money flow index reading 31.36 ahead of the Q2 numbers suggests that investors are not willing to take position at these prices amidst the bullish sentiments for crude oil, amidst the weak economic fundamentals. The closed period and board meeting notification from Law Union & Rock Insurance on Tuesday has kicked off approval of second quarter earnings reports already.

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Tuesday’s trading started on the downside till midday on selloffs in Banking, Consumer Goods, Insurance and Industrial Goods stocks before position taking in MTNN and Flourmill helped to reduce the impact of the profit takers activities. This pushed the composite index to an intraday low of 24,649.39 basis points from its high of 24,756.88bps, before closing the day slightly lower at 24,751.32bps.

Market technicals during the session were negative and mixed, as volume traded was higher than the previous session’s in the midst of negative breadth and strong buying pressure as revealed by Investdata’s Daily Sentiment Report, showing a ‘buy’ position of 95% and sell volume of 5%. Total daily transaction volume index stood at 0.63, just as the impetus behind the day’s performance stayed weak, with Money Flow Index reading 31.36 points, dropping from the previous 40.33ps. This indicates that funds are leaving the market on selloffs.

Index and Market Caps

The benchmark  NSE All-Share Index at the close of trading  lost slightly by 3.86 basis points, closing at 24,751.32bps, from the 24,753.92bps, representing a 0.02% drop, while market capitalization she  N2.02  billion at N12.91tr from an opening value of N12.91tr, and representing a 0.29% value loss.

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Tuesday downturn was due to selloffs and profit taking among low, medium and high cap stocks. This impacted mildly on the NSE’s benchmark index, increasing the NSE’s Year-To-Date loss to 7.79%, while market capitalization YTD loss rose to N30.85bn, representing a 0.33% rise from the year’s opening level.

Bearish Sector indices   

All the sectorial performance indexes were largely bearish, except for the NSE Oil/Gas which closed 0.22% higher, while the NSE Consumer Goods and Insurance indexes were down by 1.38% and 1.27% respectively, just as the NSE Banking and Industrial Goods indexes fell by 0.60% and 0.18% respectively.

Market breadth was negative as decliners outweighed advancers in the ratio of 24:9, while transactions in volume and value terms rose by 34.66% and 17.56% respectively to 167.89m shares worth N1.54bn from the previous day’s 124.69m units, valued at N1.32bn. The day’s volume was boosted by trades in Japaul Oil, FBNH, Guaranty Trust Bank, FCMB and UBA.

UACN Property and Transcorp were the best performing for the day, after gaining 7.7% and 2.9%, and closing at N0.98 and N0.72 per share respectively on market sentiments. On the flip side, Unity Bank and Dangote Sugar lost 10% and 9.8% respectively, closing at N0.60 and N11.90 per share respectively on selloffs and profit taking.

Market Outlook

Amidst the indecision and unwillingness by traders to buy at this current market value, the bearish wave will persist on pullbacks, creating new entering positions as the Money Flow Index continues its downward slant, revealing the exit of smart money, despite flowing from one sector to another seeking value in term of low prices with high upside potentials. This is just as economic recovery is expected to come fast on government and Central Bank of Nigeria (CBN) interventions, ahead of the Q2 earnings reports, implying yet that opportunities are still available as sectorial rotation continues.

Also, sectors that have suffered oversold, so far, offer attractive risk-reward buy-opportunities and outlook for considerable short, medium and long term investment. For immediate liquidity or cash let us trade low priced stocks with serious caution to avoid being trap.

However, the market’s high dividend yield continues to attract buying interests, as few 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 Q2 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, How to invest or trade profitably in a changing market dynamics and recession and mastering earnings season for profitable investment are available. To obtain your pack send ‘Yes’ or ‘Stock’ to 08028164085, 08032055467, 08111811223 now.

 Ambrose Omordion

CRO|Investdata Consulting Ltd

Tel: 08028164085, 08032055467