Investors Ignored Good Dividend Stocks In The Midst Of Economic Uncertainties
Market Update for the Week Ended March 6 and Outlook for March 9-13
It was a mixed trading sessions on the Nigerian Stock Exchange last week to halt the five successive weeks of bearish sentiment and selloffs due to concerns over lack of liquidity in the equity segment and impact of one case of coronavirus in Nigeria that sent fear to investors with the global markets and economics being threatened by the epidemic outbreak.
Stocks advanced within the period under consideration as buying interest was noticed in banking, insurance and oil sectors due to the fact that more companies released their 2019 full year audited results to the market with impressive numbers and dividend declarations that attracted funds to the market.
In this same week, the government announced its plans to review the 2020 budget, senate approved $22.7 billion loan request from the executive and another rating agency S&P joined its counterparts to downgrade the nation’s economy from stable outlook to negative.
We at Investdata are not against the government borrowing but the timing and economic reality are the concerns here, because cost of borrowing and source of repaying are also very important.
The recent downgrade of the Nigeria economy from stable to negative by S&P rating agency will increase the cost borrowing in the international market, at a time the price of oil which is the nation major source of revenue is crashing to sell at $51 as at Friday, below the 2020 government benchmark price of $57.
Its obvious that borrowing helps to boost economic activities and enhance the living standard of people, but in Nigeria the case is different, upon the huge yearly budgets for good five years the nation economy is still struggling and there is no direction due to implementation and disbursement style of the economic managers, policy summersault and counter policies of the same governmenIt’s
Outlining how the $22.7 billion will be spent is not the problem but Implementation is the key for it to impact positively on the economy and the people. Repayment plan is the very key thing here considering the high cost of governance today and political ideology of Nigerian politicians. We suggest that the government should suspend the borrowing of $22.7billion for now, as government review its 2020 budget to reflect the prevailing economic reality.
Stock markets across the globe last week had a volatile sessions as some suffered setbacks on impact of the coronavirus outbreak that triggered selloffs for safe havens. On the fear of the virus influence on the world economy, US monetary policy committee has again cut rate to mitigate the effect of the outbreak on its economy and boost productivity just as G7 Finance officials agreed to implement policies that will support growth at the end of their conference held during the week. This is due to the impact of the disease on oil price that is below $50 now.
Movement Of NSEASI
The composite All-Share Index opened the week on a negative note. However, it rebounded on Tuesday and it was sustained till Thursday before pulling back on Friday to shed some of its gains and close the week marginally higher.
Consequently, the benchmark index for the period recorded a gain of 0.24%, as the week opened trading at 26,216.46bps, touching an intra-week high of 26,626.07bps and low of 25,816.57bps on panic selloffs and repositioning in high cap stocks as more companies released their dividend news. The index finally closed the week at 26,279.61ps, on a higher traded volume when compared to the previous week.
Also, market capitalisation was up by N37 billion to N13.70 trillion, from an opening value of N13.43 trillion representing a 0.275 % value gain. The difference in percentage change of the index and market cap was as a result of the listing of additional shares of 10.16 billion ordinary shares of Wapic Insurance at 50 kobo and 336.86 million shares of Restar Express at N4.00 respectively. We also noted, that the share price of Nigerian Breweries was adjusted for N1.51 dividend.
Medium and small companies stocks topped the week’s advancers table, with continued sell pressure in consumer and industrial goods, while the accumulation of high dividend-paying stocks persisted among financial services providers and Oil/Gas sectors in midst of audited corporate earnings that were released in the period under review. Market players have also continued to trade cautiously in the expectation of more scorecards and dividend news.
The mixed sentiment and seemingly improved buying interest during the period was evident in the market breadth as advancers outnumbered decliners in the ratio of 36:25. The impetus behind the week’s performance was weak, as Money Flow Index reads 44.44bps, compared to the 51.43bps of the previous week.
The high volume of trade indicates the increased demand for banking and insurance stocks by traders and investors as they position in small, medium and large companies, even as Investdata’s Sentiment Report for the week was mixed with 57% ‘buy’ volume, and 43% ‘sell’ position, on a transaction volume index of 1.36.
NSEASI Weekly Time Frame
From the above weekly chart of the NSE Index, the money flow index continues to indicate that funds are leaving the market while momentum indicators vary in their directional movement, with the index resisting further decline after 100% Fibonacci correction.
It is obvious that institutional investors are contemplating to be in cash or take position in these high yields stocks as macroeconomic data remained mixed with economic reality revealing negative outlook in the face of coronavirus impact and oil price at $48. The waiting game is expected to help investors determine which window they will be considering, whether equity or fixed income especially against the ongoing assets repricing in the financial market.
The index, on a weekly time frame, is trading below its 20-Day Moving Average; the Relative Strength Index reads 38.69.
Mixed Sectoral Indices
The sectoral indexes were largely bullish for the week, except for the NSE Consumer and Industrial Goods that closed lower by 5.87% and 4.27% respectively, while the NSE Banking Index led the advancers, after gaining 3.78%, followed by the NSE Insurance and Oil/Gas indexes that were up by 1.40% and 0.80%, respectively.
Market transactions, in terms, of volume and value for the week, were up by 16.77% and 7.21% respectively, as investors exchanged 1.81 billion shares worth N26.01 billion, as against the previous week’s 1.55 billion units valued at N24.26 billion. This volume was mainly driven by trades in financial services stocks, especially Guaranty Trust Bank, Zenith Bank and UBA
UACN Property and Skyway Aviation were the best performing stocks for the week, topping the gainers chart with 22..89% and 20.66% respectively, closing at N1.02 and N2.57 per share on low price attraction and market forces. On the flip side, Unilever and Lafarge Africa lost 13.33% and 11.94% respectively, closing at N13.00 and N36 per share on selloffs and profit-taking.
As we enter the Second week of March, more audited earnings reports and dividend declarations to dictate the market direction in the midst of profit-taking and repositioning by market players, as more maturing OMO and bonds mature, making more funds available for equity investment, even as we noted the fact that funds managers are holding cash.
This is just as more liquidity flows to high Dividend Yield stocks with sound fundamentals, which will also be based on the seemingly positive outlook for the domestic economy, and despite the mixed outlook for 2020 from various analysts.
While discerning investors should take advantage of the current low stocks valuation to position for the medium to long-term, it is noteworthy that the Nigerian equity market is selling at a discount and therefore offers high upside potential.
We should, however, not overlook the possibility of a bargain-hunting motive supporting positive performance, especially with many fundamentally sound stocks remaining underpriced. With a dividend yield of major blue-chips continuing to look attractive in recent weeks, we expect speculative trading to shape the market’s direction, despite the seeming mixed outlook.
Again, the current undervalued state of the market offers investors opportunities to position for the short to 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 Opportunities & Trade Ideas Summit.
Also, traders and investors need to change their strategies, because of the NSE’s pricing methodology, CBN directives and its impact on the economy in the nearest future.
Meanwhile, we thank all the participants of the PHC Invest 2020 Summit last weekend, as we also welcome you all to a bullish 2020. The home study packs of Invest 2020 Opportunities and Trade Ideas Summit containing the 10 Golden Stocks for 2020 are available with an average return of 13.37% in less than 30 days. To obtain your pack send ‘Yes’ or ‘Stock’ to 08028164085, 08032055467, 08111811223 now.
CRO|Investdata Consulting Ltd
Tel: 08028164085, 08032055467