Market Update for February 18
Stocks on the Nigerian bourse dipped further on Tuesday, extending the negative sentiment and downtrend for the fourth straight trading session on low traded volume which reflected sustained indecision among investors as they traded cautiously still while awaiting the release of other major audited corporate earnings.
Also on Tuesday, the National Bureau of Statistics released its report showing that inflation rate in January moved up to a 21-month high of 12.13% from 11.98% in December, which ordinarily means that negative returns in many investment windows have deepened, since the rate of such returns, especially in the money market have fallen below inflation. This should ordinarily increase the volume of trades in the equity market, since this is the only way to hedge against inflation now, given the number of companies with high dividend yields and margin of safety. These should, ordinarily, be the target of market players.
The changing dynamics in the nation’s financial markets and mixed macroeconomic indices calls for a change in strategies and portfolios rebalancing going forward.
Also, we note that the fact that the Central Bank of Nigeria continues to attract foreign direct investment, spending as much as $34.86bn in the Over the Counter FX future for 18 months, in the process, has put a lie to the rumor of possible Naira devaluation plan. Importantly also, the long-dated FX futures will extend the maximum contract tenor to five years, thereby encouraging long term investments and inflow to the economy for sustainable development and economic growth.
The fiscal authorities need to complement this move by CBN to ensure stable economic recovery and growth by stabilizing the political environment while tackling whole-heartedly and with sincerity, the lingering spate of insecurity across the country to attract investments and at the same time ensure free movement.
Although the market maintained a downtrend going by movements in the All-Share Index, a good number of stocks are trading in a different pattern from the index, due to the effects of the new pricing methodology and accumulation in dividend-paying stocks.
Nevertheless, the management of United Capital kept to its early filing position, exciting the market with an offer of 50 kobo dividend for the year ended December 31, 2019, which translates to a dividend yield of 17.06% as of the released date which is attractive for income investors. The qualification date for the said dividend is March 6, 2020, while the annual general meeting and Payment date are March 24 and 26, 2020 respectively.
Tuesday’s trading opened on the downside in the morning and stayed in that direction throughout the session, but oscillated in the late afternoon to touch intraday low of 27,527.51 basis points, from its high of 27,570.94bps, before retracing slightly to close the day lower at 27,547.56bps on a low traded volume.
Market technicals were weak and mixed, as volume traded was higher than the previous session, in the midst of almost flat breadth and mixed sentiments as revealed by Investdata’s Sentiment Report, showing 46% ‘buy’ volume and 54% ‘sell’ position. The total transaction volume index stood at 0.54, while the impetus behind the day’s performance was seriously weak, despite the Money Flow Index inching up to 4.55 points from the previous day’s 4.47 points. This indicated that the market is still lacking liquidity, despite the seeming entrance of funds into some stocks.
Index and Market Caps
The composite NSEASI lost a marginal 23.38bps, closing at 27,547.564bps from its 27.570.94bps opening, representing a 0.08% drop, just as market capitalization shed N12.18bn, closing at N14.35tr, from the N14.36tr opening level, which also represented a 0.08% depreciation in value.
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The downturn recorded was impacted by profit-taking in Guaranty Trust Bank, Zenith Bank, FBNH, Vitafoam, Fidelity Bank and Law Union among others, which impacted negatively on the NSE’s Year-To-Date gain, reducing it to 2.63%. Market capitalization, YTD, gain dropped to N1.39tr, representing 10.72% growth over the year’s opening value.
Mixed Sector Indices
It was a mixed performance for the sectoral indexes, while market breadth was negative with decliners outnumbering advancers in the ratio of 13:11, while market transactions in terms of volume and value traded climbed by 24.9% and 36.2% respectively to 168.07m shares worth N2.16bn, from the previous 134.61m units valued at N1.58bn. The day’s volume was driven by Zenith Bank, United Capital, Guaranty Trust Bank, Unilever, and UBA.
UACN Property and Wapic Insurance were the best-performing stocks, after gaining 10% to close at N0.99 and N0.33 per share respectively on market forces. On the flip side, Law Union and Japaul Oil lost 4.8% each, closing at N0.99 and N0.20 on profit-taking.
We expect dividend news-driven reversal in the market, as the index tested 61.8% Fibonacci retracement on a declining volume traded, with more audited earnings hitting the market any moment from today. This is despite the likely continuation of the mixed intraday movement in the midst of profit-taking, with investors buying increasing positions ahead of dividend news. This is also against the backdrop of the fact that the capital wave in the financial market 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 in anticipation of the 2019 full-year earnings reports, amidst the changing sentiments in the hope of improved liquidity and positive economic indices which may reverse the current trend.
We see investors focusing on the upcoming full-year earnings season, targeting companies with strong potential to grow their dividend on the strength of their earnings capacity.
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 New Year.
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 last December.
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.
Meanwhile, the Investdata team welcomes you to a bullish 2020. The home study packs of our Invest 2020 Opportunities and Trade Ideas Summit, containing the 10 Golden Stocks for 2020 are available. To obtain your pack send ‘Yes’ or ‘Stock’ to 08028164085, 08032055467, 08111811223 now.
CRO|Investdata Consulting Ltd
Tel: 08028164085, 08032055467