Investors In Caution Mode, Amid Low Volume, Await Inflation, GDP Data, Earnings
Market Update for August 16
Trading activities on the Nigerian Exchange on Monday stayed mixed and volatile as the key performance index NGXASI suffered a marginal setback to start the week on a negative note, thereby halting four consecutive sessions of bull-run due to profit-taking and price adjustment in Flour Mills, Consolidated Hallmark Insurance and Meyer for a dividend of N1.65, two kobo and N1.50 per share respectively, as recommended by their boards.
The mixed sentiment revealed the battle between buyers and sellers during the session, as portfolio repositioning and sectorial rotation continued on the strength of the positive half-year earnings reports of listed companies, ahead of the macroeconomic data and scorecards of interim dividend-paying banks. Against expectations, the July consumer price index was not made available by the Nigerian Bureau of Statistics, even as the Central Bank of Nigeria (CBN) reportedly, again, projected that inflation would drop to 13% before the end of 2021.
Meanwhile, the better-than-expected corporate earnings and improved Purchasing Managers’ Index, in the past quarter, have given an insight into what investors should expect from the Q2 GDP numbers scheduled for release on August 26, according to the timetable of the NBS. Also, President Mohammadu Buhari, on Monday, signed the Petroleum Industry Bill (PIB), which has been so ensnared in controversy into law, a move some expect would boost the nation’s economy, particularly the oil and gas sectors if faithfully implemented, despite the controversies. In all these, the global political concern and management of the Delta variants of COVID 19 will determine the rate of economic recovery if there is no further lockdown in the coming weeks and months.
Technically, the low traded volume in the midst of positive broad market and breadth suggests investors are still studying the earnings released so far and watching their positions, especially after the composite NGX index had formed a double bottom chart pattern that supports an uptrend. A breakout of the black line which is a strong resistance level of 39,840.27bps will confirm a new trend in the market. At the same time, highly capitalised stocks remain a safe haven for players, considering the impressive half-year numbers that emanated from these companies, and ahead of their Q3 earnings reports expected within the last quarter of the year. Incidentally, that is also the most active quarter of the economy and market, due to end-of-the-year festivities and other seasonality.
Meanwhile, Monday’s trading opened slightly on the upside and oscillated between the mid-morning to the afternoon on buying interests and profit booking in high and medium cap stocks which pushed the NGX index to an intraday low of 39,474.46bps, from its highs of 39,524.53bps. Thereafter it closed marginally below the opening level at 39,505.40bps on positive market breadth.
Market technicals were weak and mixed as volume traded was lower than that of the previous sessions in the midst of breadth favouring the bulls on mixed sentiments as revealed by Investdata’s Sentiment Report showing 62% ‘buy’ volume and 38% ‘sell’ position. Total transaction volume index stood at 0.58 points, just as the momentum behind the day’s performance remained relatively strong with Money Flow Index reading 54.98 points, from the previous day’s 60.38 points, an indication that some funds left the market.
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Index and Market Caps
At the end of Monday’s trading, the benchmark NGX All-Share index dropped 16.94bps to 39,505.40bps, from its opening level of 39,522.34bps, representing a 0.04% drop, just as market capitalization fell by N8.82bn at N20.58tr, from its N20.58tr, also representing a 0.04% value loss.
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The session’s downturn was driven by price depreciation in Zenith Bank, Lafarge Africa, UBA, Chemical & Allied Products, Cadbury, Fidelity Bank, and Ecobank Transnational Incorporated, among others. These impacted mildly on Year-To-Date loss which increased to 1.90%, just as loss in market capitalization YTD rose to N473.87bn, representing a 2.25% decline from its opening value for the year.
Performance indexes across sectors were mixed, as the NGX Banking and Industrial Goods were down by 0.65% and 0.09% respectively, while the NGX Energy Index led the advancers, after gaining 0.16%, followed by Insurance and Consumer goods with 0.04%and 0.02%respectively.
Despite the loss, market breadth turned positive with gainers outnumbering losers in the ratio of 25:15, while activities in volume and value terms dropped with investors only exchanging 141.28m shares worth N1.64bn. The day’s volume was boosted by trades in Etranzact, Fidelity Bank, Transcorp, Consolidated Hallmark Insurance and Access Bank.
MRS Oil and May & Baker were the best-performing, after gaining 9.92% and 9.77% respectively, closing at N13.85 and N4.83 per share respectively on the market forces and impressive Q2 numbers. On the flip side, ABC Transport and Lasaco Assurance lost 8.33% and 6.67% respectively, closing at N0.33 and N1.40 per share, on selloffs and profit-taking.
We expect the mixed trend to continue on profit booking and repositioning in value and growth stocks on the strength of half-year earnings reports, while investors continue their portfolio reshuffling and studying of the corporate earnings ahead of the July inflation, and Q2 GDP data release, as well as results from interim dividend-paying banks. Also, investors are still observing the interplay of market forces following recent developments in the FX market as the CBN plans to launch a digital currency platform. The day’s low volume suggests that institutional investors and others are still cautiously looking at the numbers. It is noteworthy that oil price continues to oscillate in the international market; corporate actions, as well as the interim dividend possibilities, are around the corner.
We note also that some stocks are trading within their buy ranges to become more attractive at this point for income investors and traders, even as the market anticipates positive news, while oil price continues to oscillate above $68pb to support the global economy and stock market recovery across climates. We also expect the ongoing COVID-19 vaccination to support the global and domestic economic recovery that will enhance the market and give direction.
The banking sector and others remain attractive on the back of the prevailing low prices, despite the mixed half-year earnings.
Again, the way to go is: Target dividend-paying stocks and fundamentally sound companies with growth prospects in 2021 and beyond, looking the way of mispriced equities ahead of interim dividend announcement and last quarter economic activities. This is especially given that despite the seeming improvements, fixed income yield continues to offer a negative real rate of return due to the galloping inflation.
However, the strong and faster recovery may continue, depending on market forces, going forward, as propelled by expected Q2 earnings reports, until the next MPC meeting nextmonth.
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