Market Update for June 22
Massive selling, on Monday, continued on the Nigerian Stock Exchange (NSE) on the back of high volatility and mixed sentiments following buying interests in the shares of Nestle Nigeria which minimized the session’s losing momentum on a low traded volume and negative breadth.
The NSE’s All-Share index closed lower for the third consecutive trading day on increasing crude oil price fluctuation in the midst of heightened indecision among market players that are unwilling to position at current prices. Such investors are factoring the expectedly mixed Q2 numbers into the current prices, knowing that the period has been characterized by partial operations by various companies and businesses due to the lockdown to curtail the spread of the novel coronavirus pandemic. This has seriously weakened economic activities in the country, as well as government revenues.
The companies capable of growing their earnings at an above average pace at this time will become even more attractive, against a backdrop of the subsisting ultra-low interest rates in the country, while investors continue to pay higher and higher Price to Earnings Ratios for such stocks.
Meanwhile, the difference between growth and value continues to grow.
For example, the shares of Nigerian banks today trade at a fraction of their book value, while many quality growth stocks are on offer at 12-15 times their book value, a trend that has continued, more or less, since the 2008-2009 market crash. For so long, few investors have dared to buy the out-of-favour sectors, just as the only trouble with paying high Price to Earnings multiples for growth stocks is when their rate of earnings growth slows down.
The shortest and most simplified valuation metrics- Price to Earnings Ratio is looking up in the short-run, indicating low earnings by the companies despite the relative low prices. This means that most of the companies are relatively overpriced in the short-term.
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Meanwhile, Monday’s trading opened on the upside marginally and turned red between mid-morning and midday on profit taking in BUA Cement which was reversed on price appreciation in Nestle in the early afternoon, before the selloff in the combination of Nigerian Breweries, Ardova, Stanbic IBTC and others. This pushed the benchmark index to an intraday low of 24,651.30 basis points, from its high of 24,877.30bps, before finishing the session lower at 24,753.92bps.
The day’s market technicals were negative and mixed, as volume traded was lower than the previous session’s in the midst of breadth favoring the bears and mixed sentiment as revealed by Investdata’s Daily Sentiment Report, showing a ‘sell’ position of 55% and buy volume of 45%. Total daily transaction volume index stood at 0.45, just as impetus behind the day’s performance was weak, as Money Flow Index reads 40.33points, dropping from the previous 45.88ps. This indicates that funds are leaving the market on selloffs.
Index and Market Caps
At the end of Monday’s trading, the composite index shed 72.83 basis points, closing at 24,753.92bps, from the 24,826.75bps, representing a 0.29% drop, while market capitalization lost N24.7bn at N12.91tr from an opening value of N12.95tr, and representing a 0.29% value loss.
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Monday’s downturn resulted from profit taking and selloffs in BUA Cement, Guaranty Trust Bank, FBNH, UBA, Nigerian Breweries, Stanbic IBTC, Guinness Nigeria, Flour Mills, Ecobank Transnational Incorporated, GSK, and Ardova, among others. This impacted mildly on the NSE’s benchmark index, increasing the NSE’s Year-To-Date loss to 7.78%, while market capitalization YTD loss stood at N30.87 billion, representing a 0.35% rise from the year’s opening level.
Bearish SectorIndice
Performance indexes across the sectors were largely bearish, except for the NSE Consumer Goods which closed 2.10% higher, while the NSE Industrial Goods and Insurance indexes fell by 1.50% and 0.87% respectively, just as NSE Banking and Oil/Gas indexes were down by 0.0.60% and 0.53% respectively.
Market breadth was negative as the decliners outweighed advancers in the ratio of 26:11, while activities in volume and value terms fell by 28.62% and 34.41% respectively to 124.69m shares worth N1.32bn from the previous day’s 174.68m units, valued at N2.01bn. The day’s volume was boosted by trades in Japaul Oil, Guaranty Trust Bank, Zenith Bank, UBA and Chams.
The best performing stocks were Japual Oil and Nestle Nigeria which chalked 8.70% and 7.72% respectively, closing at N0.25 and N1, 179.00 per share respectively on low price attraction and market sentiments. On the flip side, Neiemth Pharm and Cutix lost 9.71% and 9.09% respectively, closing at N1.39 and N1.60 per share respectively on profit taking and selloffs.
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
amberose.o@investdataonline.com
Tel: 08028164085, 08032055467
