Market Update for April 7
The nation’s equity market on Tuesday surged from the previous day’s downward slide as volatility remained high on improved buying interest driven by bargain hunting at a time stock prices are hitting new 52-week, as well as between five and 11-year lows. This has made some equities attractive to discerning investors, eve as the first of 2020Q1 earnings reports emanated from Infinity Trust Mortgage.
The seeming strength returning to the market after two months of decline induced globally by the Coronavirus pandemic at the peak of earnings reporting season has left many stocks attractive, following which they now offer high dividend yields. This has supported the improved traded volume, in spite of the ongoing remote trading, and reveals that investors are taking advantage of the prevailing low prices to accumulate fundamentally sound stocks.
Given the attempted reversal in early April, and considering Monday and Tuesday’s trading volatility which were very high relative to last week’s sentiment reports, the reason for mixed sentiments and high volatility remains investors’ concerns over the already challenged economy.
This is despite the ongoing move by the government to avert another recession, following which the Federal Government is proposing a cocktail of measures, including harvesting $150m from the Sovereign Wealth Fund to cushion effects of the drop in government revenue on the three tiers (READY MORE). The government is looking at another round of borrowing from multilateral agencies, just as there are moves to pump more money into the Social Investment Programme to mitigate the effects of the economic downturn on poor Nigerians, which the National Assembly leadership now say must be properly legislated and no longer done haphazardly (READ MORE).
While volatility is typically associated with markets that are on the decline, it can actually go both ways, which is exactly what we are seeing now on the Nigerian Stock Exchange (NSE). The NSE index movement is a good example of how extraordinary the market swings have been in recent weeks.
Meanwhile, Tuesday’s trading started on the upside in the early hours of the trading session and was sustained throughout the day on position taking in banking and other highly capitalized stocks that pushed the NSE’s benchmark index to intraday highs of 20,925.19 basis points, from its low of 20,667.55ps. It closed the session higher, thereafter at 20,925.19bps on a higher traded volume than the previous session.
Tuesday’s market technicals were positive and strong with a positive breadth and high buying interest as revealed by Investdata’s Daily Sentiment Report, showing a ‘buy’ volume of 100% on a total daily transaction volume index of 2.95. The impetus behind the day’s performance was seriously weak, despite Money Flow Index inching up to 9.26 points, from the previous session’s 8.60ps, indicating that funds entered the market.
Index and Market Caps
The key performance NSE All-Share index, on Tuesday, gained 225.81bps, after opening at 20,669.38ps, representing a 1.24% rise, just as market capitalization climbed N133.31bn up
at N10.91tr from the N10.77tr it opened, which also represented a 1.24% gain.
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The day’s upturn was driven by buying interests in MTNN, Guaranty Trust Bank, Zenith Bank, UBA, Lafarge Africa, FBNH and UACN, a situation that impacted mildly on the NSE index, reducing its Year-To-Date loss to 21.41%. Market capitalization YTD decline stood at N1.89tr, representing a 16.86% drop from the year’s opening value.
Mixed Sector Indices
The sectorial performance indexes were largely bearish, except for the NSE Banking and Industrial Goods that closed 3.22% and 0.30% higher respectively, while the NSE Insurance index led the decliners after losing 2.18%, followed by the NSE Oil/Gas and Consumer Goods that closed 0.62% and 0.14% down respectively.
Market breadth remained positive as advancers outnumbered decliners in the ratio of 24:10, just as market activity in volume and value was up by 328.78% and 34.37% respectively, with investors exchanging 1.44bn shares worth N5.57bn, as against the previous session’s 336.43m units valued at N4.13bn. Volume was enhanced by trades in Omoluabi Microfinance, Guaranty Trust Bank, FBNH, Zenith Bank and UBA.
The best-performing stocks for the session were FBNH and Sterling Bank, which gained 10% and 9.91% respectively, closing at N4.40 and N1.22per share on the proposed dividend of 38 kobo announced and low price attraction. On the flip side, Cadbury and ARDOVA (formerly Forte Oil) lost 10% and 9.78% respectively, closing at N6.30 and N12.45 per stock, on profit-taking and selloffs.
We expect mixed intraday performance to continue, as trading remains dicey, at a time of positive reactions to dividend news from Lafarge Africa and FBNH, market players’ position ahead of Q1 2020 earnings reports and impacts of the stimulus package on the economy. Also, more companies are notifying the exchange and investors of their closed period for 2020 first-quarter earnings reports.
However, the high dividend yields continue to attract buying interests, while more audited corporate earnings hit the market going forward. This is despite the likely continuation of the selloffs, with investors buying to increase their positions in undervalued stocks ahead of dividend declaration. 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 undervalue 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.
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 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