Market Roundup for May
Trading on the Nigerian Stock Exchange (NSE) again defiled the popular saying “sell in May and return in October,” for the fourth time in five years as the benchmark All-Share index closed higher, extending the previous month’s uptrend on a positive sentiment and inflow as a result of the high dividend yields, despite mixed corporate earnings.
Also not to be taken for granted is the recovery of oil price which supported the optimism during the month. The rally recorded over the period irrespective of high volatility in the last few trading sessions was just as predicted in our updates in the course of this pandemic-induced economic meltdown.
Over the course of the month an interesting pattern emerged as stocks that had been up trending since the rebound in April began to stall on the back of profit taking and selloffs which slowed down the bull-run on the daily chart. This resulted from portfolio realignments and rebalancing along sectors with potentials to sustain positive earnings due to the business models despite the ongoing global and domestic economic reset and downturn.
The sectoral rotation and positive sentiments may likely support the market in the new month and help reduce volatility resulting from revaluation of equity assets ahead of the 2020Q2 corporate earnings as the high Price-to-Earnings Ratio are already indicating the short-term overpriced state in the recovery trend.
Thursday’s cut in the benchmark Central Bank of Nigeria (CBN) Monetary Policy Rate by 100 basis points to 12.5% is expected to boost economic activities and make funds cheaper for private sector and businesses to survive the current economic downturn. It is a measure expected to quicken economic recovery in the face of the subsisting weak macroeconomic indices occasioned by the novel coronavirus pandemic. This is already evident in the recently publish economic data such as the 2020Q1 GDP, which slowed down to 1.87% from 2.24% in 2019Q4, the 12.34% rise in April inflation, and the low industrial productivity.
This reduction in monetary policy rate will, therefore, support the equity market with money market yields and rates crashing further, remaining unattractive and in the process, threatening the profitability of banks, even as provisions for loans loss are on the rise. But, luckily, the CBN noted the drop in the ratio of Non-Performing Loans in the industry to 6.58% at end-April 2020, compared with 10.95% in the corresponding period of 2019.
This, the Monetary Policy Committee noted in the communiqué at the end of its meeting on Thursday, was “due largely to recoveries, write offs and disposals.”
The committee therefore adjudged the development “as a sign of reasonable stability in the banking system and urged the Bank to maintain its toolkit of prudential and regulatory measures to ensure that NPLs stay below the prudential benchmark of 5.0%.”
The outbreak of the deadly disease continues to reshaping the e-commerce landscape, during this global lockdown and it is obvious that things will not return to how they were pre-pandemic. The lockdown have turned technology, telecom companies, agro businesses, healthcare firms, among others into investors’ toast.
This suggests that investors should keep their gaze on the market and get Investdata videos for strategies to invest and trade profitably in this changing market environment and the impending recession.
The bull run was obvious in the 18 trading sessions of the month of which the market was up for 13 trading sessions and down in just five to continue two months of recovery, reducing the market’s year-to-date loss position to 5.86%. The NSE All-Share index gained a total of 9.76% during the month of May, due to factors such as the low price attraction of dividend-paying companies that paid dividend for 2019, the buying interest of smart money, despite disconnection between the market rally and economic realities as revealed by the weak economic fundamentals and data.
Meanwhile, the composite NSEASI for the month of May gained a total of 2,246.81 basis points, closing at 25,267.82bps, after opening at 23,021.01bps on a strong accumulation move for dividend and capital gain that impacted on stock prices to extend recovery from their new 52-week low within the period under review.
The buying volume of total transactions for the month was 92%, while selling position was 8%, continuing April’s up market with volume index during the period of 0.79. Market capitalisation gained N1.17tr, closing higher at N13.17tr, compared to the opening value of N12tr, representing 9.76% appreciation in value, with the market having a bullish sentiment on dividend qualification and declaration.
All the sectoral performance indices closed green as shown in the chart below with the NSE Industrial Goods driving the market the most in the period under review. It gained 18.97%, more significant than that of the benchmark NSEASI; followed by the NSE Pension which gained 16.10%, reflecting the power of dividend-paying stocks. This was followed by the NSE Consumer Goods Index, which climbed 14.51% up, revealing investors’ interest in undervalued stocks with strong upside potentials, amidst their low Price-To-Earnings attraction in the sector. Other sectors that closed up during the month were: NSE Main Board, NSE Banking, NSE 30 Index, NSE Oil/Gas, NSE Insurance and NSE Asem.
The month’s traded volume however slipped by 0.53% to 5.65bn shares from 5.68bn units in the month of April. Market breadth for the month was strong and positive with far more advancers than decliners, by a ratio of 64:9 as the market continued the bull-run.
Best Performing Stocks For May
Neimeth Pharmaceuticals topped the gainers’ table ahead of 22 other stocks, after recording 88.33% capital gain during the month, on the strength of its improving numbers and expected impact of the CBN’s intervention funds for the healthcare sector to help boost market share and bottom line. It was followed by Consumer Goods stock- Unilever Nigeria, which appreciated by 61.90%; while Cutix an industrial Goods stock chalked 55.83%; and GlaxoSmithKline Consumer, another healthcare company that closed 51.40% higher. Other low and medium cap stocks were: NPF Microfinance, 44.80% gain; Nigerian Breweries, 39.45%; and Fidson Healthcare, 38.78%; among others.
Worst Performing Stocks for May
The worst-performing stocks’ table was led by NEM Insurance which lost 9.09%, linked to profit-taking and price adjustment for a dividend of 0.15 kobo per share within the period; ahead of Courteville Business Solution’s 9.09%; Lasaco’s price fell by 3.85% on the back of the mixed sentiment, as investors await its recapitalistion plan. The share price of Saplat Petroleum Development Company dropped by 3.64%; Academy Press, 3.22%; just as Trans-nationwide’s share price fell by 3.20%, on the back of market forces and profit-taking.
NSEASI MONTHLY TIME FRAME
The NSE’s Index action rebounded in the last two months after the March lows on positive sentiments for the 2019 financials that supported this uptrend as 2017 April support level turned a new resistance as market recovery move continues. A breakout of this new resistance level will complete full recovery from the coronavirus-induced March low.
Where To Invest And Expectations For June, July
The outlook for the global economic and market remains unstable as the outbreak of the coronavirus pandemic wreaked the world economy and deepened debt-to-GDP ratio of many nations. There are also factors such as political uncertainties and low crude oil prices, despite the recovery which is being threatened by the ongoing cold war between US and China.
With the gradual easing of the global lockdown people are returning to the streets and factories reopening to give direction as tech industry operators take advantage of the scenario to lunch new products and services.
Back home, and with the intervention funds and stimulus packages of government and the CBN aimed at quickening economic recovery in the months and quarters ahead, we expect oil price rebound to be sustained. There is also need for effective use of borrowed funds as the government, amidst international and local donations at this period to mitigate the impact and complement the CBN’s effort to boost productivity, create employment and trigger recovery. Reasons for this are not far-fetched, given the impact of the lockdown and insecurity in the coming months, especially now that the cut in MPR will make more funds available to private sector at a cheaper cost to drive their businesses and boost economic activities that supports earnings power of the people.
In June, we expect inflation rate for May will be released by the NBS and may like rise further despite being the harvesting season due the high cost of transporting goods and services, just like the Purchasing Managers Index (PMI) could remain low with the economy still struggling to find direction after lockdown.
The March year-end accounts are expected to strengthen market fundamentals if the numbers beat expectations, but with the unfolding events and economic realities, most of the expected full-year results will be mixed as Q2 earnings reports will further confirm state of listed companies and business environments. The likely correction in the market, despite the recent rally in many stocks, will create an entering point on the strength of the intrinsic value and sector rotation.
Traders and investors who understand the importance of combining fundaments and technical analysis in making equity investment decisions should take this opportunity of a pullback to position in some sectors for short, medium and long term gains. This is especially in the banking sector after price correction, healthcare, Telecoms agribusiness, and services sector, undervalued consumer goods after a carefully study of the recent price patterns and fundamental data available to the market. To save yourself the time, get Investdata video and materials on how to realign your portfolios at this season.
What to expect in June and July
- Release of March full-year earnings as June is the end of the statutory 90 days for some audited results and their Q1 on the extension of release date. These numbers from blue-chip companies may strengthen market fundamentals, if positive.
- The oscillating trend of equity prices as a result of repositioning of portfolio along the line of positive numbers and sectorial potentials.
- Market outlook for June remains mixed and dicey as the month has closed up in three of the last five years and down twice. But with the positive sentiment and strong momentum as the market expects the economic recovery to start, helped by the CBN’s sustained intervention in the FX market. There is also the factor of banks implementing the MPR cuts, helping to boost liquidity and confidence in the economy and market which is expected to impact business activities in the second half of the year.
- Relative low price after the Q2 numbers, may trigger more demand for stocks, but invest wisely, using chart patterns, earnings released date and sentiment reports, when taking decisions as a trader.
- Managing risk and protecting capital at this point is very important, so you can determine when to buy or sell, by watching the stocks and the market, using technical analysis.
- Let numbers released by companies guide your decision and time to stay in that position.
- Being the last month of the second quarter of the year, activities are likely to pick up as investors reposition for Q2 earnings season and second half of the year.
- Ahead of second quarter earnings season get the videos and PDF presentation of how to trade and invest with earnings season, where short trading strategies and how to identify quality companies to invest before the market look toward it have be discussed.
With the market’s phase changing, it is time to combine fundamentals and technical tools to make decisions by knowing the support and resistance levels to reposition or exit any position. You must know the cycle it, or particular stocks therein are to successfully manage your trading and investment risk. For stocks that should be on your shopping list to buy in these seasonal changes as the year unfolds, sign up to INVESTDATA BUY AND SELL signal setup by calling 08032055467.
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