Investors’ Worth Up By N8.21tr, As NGSE Index Records 12-Year Best Returns In 2020

Market Update for December 31

The Nigerian equities market ended the year 2020 with a bull-run, as Santa Claus rally continued to ride on strong demand for high cap stocks that control 70% of the market capitalization, a situation that lifted the benchmark index across the 40,000 psychological line on a very high traded volume and positive sentiment.

The year 2020 ended as the best year for the Nigerian Stock Exchange (NSE) All-Share index in the 12 years since 2008, with equity prices appreciating by 50.03% on the average, while equity capitalisation hit N21.06tr for the first in the history of the market. This feat in a year that many would easily consider most horrible given the ravaging Coronavirus pandemic, which broke very early in the year, was achieved on the back of a favourable Monetary Policy introduced by the Central Bank of Nigeria (CBN), particularly the low interest rate in fixed income instruments, recovering crude oil prices. Other factors included the better-than-expected earnings from the listed companies in the face of COVID-19 lockdown and the discovery of vaccines that have driven the rally and supported the recovery despite the weak economic fundamentals and the prevailing recession. We cannot ignore the fact that the equity market was the only one offering rates above the country’s raging inflation as a critical factor.

The Nigerian equity market on Thursday attained a 13-year high after the composite NSEASI broke out the 40,000 resistance level, following which there is the possibility of this trend continuing is high, ahead of the full-year earnings reporting season in 2021, notwithstanding fear of the January effect.

However, we must warn at this point, that investors should not underestimate the possibility of a pullback any time soon, because profit-taking is inevitable, even while the market has a trading pattern that supports an uptrend.

The summary is: considering the prevailing new trading pattern and the fact that the index is rallying outside the upper limit of the Bollinger band, signaling sell, while other technical indicators are showing overbought and support a possible market correction.

Meanwhile, Thursday’s trading opened on the upside and was maintained throughout the session despite oscillating on position taking and profit booking, a situation that pushed the key performance index to an intraday high of 40,270.72 basis points, from a low of 39.515,20bps, before closing higher at 40,270.72bps on a negative breadth.

Market technicals were positive and mixed with volume traded higher than the previous day’s in the midst of breadth favoring the bears on a positive sentiment as revealed by Investdata’s Sentiments Report showing 78% ‘buy’ volume and sell position of 22%. Total transaction volume index stood at 1.56 points, just as energy behind the day’s performance was strong, with Money flow index looking up at 80.12pts, from the previous day’s 75.71pts, indicating that funds entered the market ahead of the 2021 corporate actions.

Index and Market Caps

The NSEASI at the end of Thursday’s trading gained 758.41 basis points, after opening at 39,512.30bps representing a 1.92% growth, just as market capitalization rose by N396.56bn, closing at N21.06tr, from an opening value of N20.66 trillion, representing a 1.92% value appreciation in investors portfolio. During the session, Vitafoam and Neimeth released their full-year results, showing impressive numbers, following which Vitafoam’s board recommended a dividend 0f 70 kobo per share.

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Thursday’s upturn was driven demand on BUA Cement, MTNN, UBA, FCMB and BOCGAS among others. This impacted positively on Year-To-Date gains, which increased to 50.03%, just as YTD gain in market capitalization soared to N8.21 trillion, representing a 61.36% growth.

Mixed Sector Indices

The sectorial performance indexes were mixed and largely bullish, except for the NSE Banking and Insurance that closed 0.86% and 0.41% lower, while NSE Industrial Goods led the advancers, after gaining 3.90%, followed by the Oil/Gas and Consumer Goods that closed 0.65% and 0.62% higher respectively.

Market breadth turned negative, as decliners outnumbered advancers in the ratio of 24:18; even as activities in volume and value terms were mixed with traded volume up by 90.57%, after investors exchanged 710.7m shares, as against previous day’s 372.93m units. Transaction value, however, fell by 12.35% to N10.08bn, from midweek’s N11.5bn. The day’s volume was driven by Aiico, Access Bank, Japaul Oil, FBNH and UBA.

BOC GAS and NNFM were the best performing stocks, gaining 10% and 9.93% respectively to close at N9.57 and N5.61 per share, on market sentiment and improving earnings. On the flip side, FTN Cocoa and Eternal lost 9.59% and 9.09% respectively, at N0.66 and N5.10 per share, on profit taking.

Market Outlook

We expect the trend to continue in the new year on buying interests in highly capitalized stocks that control 70% of the market cap pushed the NSE to rank the best performing market in the world, as oil price rally and more stocks that drive the Santa Claus rally are waking up in terms of price appreciation ahead of year end window dressing. There was also the interplay of market forces, as traders and investors interpret the impact of funds rotation and the current happens globally. Investors should, at this point, target solid stocks selling at discount in the midst of the ongoing cautious trading, portfolio diversification ahead of seasonal trends and expectations.

Also important is the fact that technical indicators reveal overbought on the weekly and daily chart, while RSI reads 70 points and above, a situation that supports the likelihood of another correction.

However, the strong and faster recovery may continue, depending on market forces, going forward, as propelled by the quality of Q3 earnings presented, especially by the tier-1 banks, even as analyses of numbers released so far have helped repositioning of investors’ portfolios on the strength of sectoral and company’s performances.

The NSE’s index action and indicators are looking up in the same direction on a very high traded volume and positive buying sentiments.

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 rest of the year.

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Ambrose Omordion

CRO|Investdata Consulting Ltd

Tel: 08028164085, 08032055467