Mixed Outlook Ahead As Speculative Trading Shapes NGSE Market Direction

Market Update for the Week Ended May 22 and Outlook for May 27-29

The raging bull sessions continued last week on the Nigerian Stock Exchange (NSE) breaking key resistance levels on positive sentiments as investors reacted to the inflow of mixed corporate earnings and actions released. At the same time, investors are positioning for the high dividend yields of blue chip companies ahead of their qualification and closure dates, which has attracted inflows to equity assets, with institutional investors taking advantage of the relatively low prices and short time frame offered by the market. At the same time, more companies are expected to release their 2019 December 31 audited financials in the coming week, ahead of the 60-day extended deadline for submission of the 2019 year-end and 2020Q1 financials which ends on May 31, 2020.

It is important to note that the strong recovery of crude oil prices at the international market has supported the prevailing sentiment in the market, despite the global economic uncertainties and the fact that the continued rise in Nigerian stock prices is a disconnect from realities in the domestic environment. This is especially given the fact that the Nigerian economy is now projected to weaken by 3.4% this year, because of the telling effects of the Coronavirus (COVID-19) pandemic and the global meltdown.

Meanwhile, as the global economy begins to reopen gradually, triggering demand for crude oil it has impacted commodity prices positively for almost four weeks , even as the price of Nigeria’s Brent crude is on the upsurge at the international market, after the Federal Government has cut its benchmark oil price for 2020 budget repeatedly.

Nigeria’s external reserve is looking up in recent days on the back of the grant from the International Monetary Fund (IMF) to cushion the effects of COVID-19 on the economy, and impact of the oil price decline, hitting a 21-year low. This has also supported the appreciation of the Naira at the currency market, even as the Central Bank of Nigeria (CBN) has promised to inject more liquidity in the Investors and Exporters window of the foreign exchange market, thereby restoring confidence in the ability of foreign investors to exit at any time.

Last week also, the National Bureau of Statistics (NBS), published the consumer price index for April, showing that inflation rate for the month soared by 12.34%, from 12.26% in March, the highest level in 24 months driven by food inflation as the lockdown subsisted.  The nation’s inflation rate has risen for the nine consecutive month since August 2019 (the same month, the Federal Government shut the country’s borders. This should ordinarily be of serious concern for investors and Nigerians in general, as their purchasing power continues to drop as prices of goods and services rises steadily.

Movement Of NSEASI

It was a bullish week of strong momentum as the NSE All -Share Index recorded five days of gains, beginning with a 0.31% rise, which improved significantly to 1.03%, 1.07%, 1.26% and 1.82% respectively on a positive sentiment and strong buying interests in blue chip stocks. For the entire week, therefore, the NSEASI accumulated a total of 5.59% gain, more than enough to reverse previous week’s 0.72% loss. Last week’s uptrend was on above-average traded volume, following investors’ reactions to the 2019 audited financials submitted by BUA Cement and the dividend of N1.75 kobo proposed by the directors. Also, investors continued to position in blue chip stocks ahead of their qualification and markdown dates.

Consequently, the NSE’s benchmark indicator gained 1,333.42 basis points during the week, after opening at 23,871.33ps, within which it touched an intra-week high of 25,205.18bps, from its low of 23,871.33bps on a high buying pressure and accumulation. This growth occurred during a markup phase and calls for caution, because distribution phase is underway in the form of price correction after the dividend qualification dates and markdown of blue-chip stocks. Also important, is the fact that the divergent economic realities and strong relative strength that supports a bull trend calls for caution also, as the NSE composite index closed higher at 25,204.73ps, compared to previous week’s close after breaking out  24,000  and 25,000 psychological lines.

At the end of the week also, market capitalization gained all of N702.13bn, closing at N13.14tr, from the previous weekend’s N12.44tr, representing a 5.59% appreciation in investors’ portfolios. The robust growth was despite the adjustment of the share prices of Nestle Nigeria, UACN and Okomu Oil for dividend of N45, 10 kobo and N2.00 proposed by their boards respectively.

During the week’s bull-run, Julius Berger, 11 Plc, Okomu Oil, NPF MFB, Vitafoam, May and Baker, Niemeth Pharma, and Ekocorp made a new 52-week high, just as 12 other companies released their corporate earnings. Five of them were 2019 audited results, with the directors of Fidson Healthcare, BUA Cement and Caverton recommending a dividend of N0.15, N1.75, and N0.20 respectively.

Others were quarterly reports from Dangote Cement, Lafarge Africa, Transcorp, Transcorp Hotel, Wapic Insurance and others. The performance of these companies was mixed, with the high cap stocks posting fair results, especially Dangote Cement, Caverton, Wapco, BUA Cement and Wapic Insurance.

The advancers table for the period was dominated by medium cap stocks and dividend paying companies with qualification dates drawing closer, thereby reflecting in the market breadth, as advancers outweighed decliners in the ratio of 55:8. This supported the momentum behind the week’s performance, despite being weak, as the Money Flow Index read 32.98bps, up from 26.38bps in the previous week.

The NSE’s index action confirmed a bull trend as MACD crossed the signal line and index tested the 21-day moving average on a 100% buy position, while the money flow index closed brighter on a weekly time frame and index’s action. It broke out from the short bearish channel, heading to 100% Fibonacci retracement level, after crossing 161.8%. The RSI supported the uptrend, reading 49.93. The momentum behind the market recovery remained strong amidst the continued portfolio realignments and assets reclassification despite the ongoing global economic reset and the impending recession.

ADX weekly time frame just crossed each other to confirm an uptrend and trade above 20 at 28.35points, on a strong positive sentiments as revealed byInvestdata’s Sentiment Report for the week, showing 100% ‘buy’ volume, with the transaction volume index at 1.08

Bullish Sectoral Indices

All the sectorial performance indexes were green, with the NSE Industrial Goods index leading the advancers, after gaining 15.45%, followed by NSE Banking and Oil/Gas that were up by 7.24% and 4.89% respectively. Also, the NSE Insurance and Consumer Goods inched up by 2.02% and 0.89% respectively.

Market activity in terms of volume and value were up by 84.95% and 92.94% respectively as investors traded 1.72bn shares worth N18.85bn, from the previous week’s 926.42m units valued at N9.77bn. The week’s volume was boosted by trades in financial services stocks, especially Zenith Bank, Access Bank and FBN Holdings.

Unilever and Redstar Express were the best-performing stocks for the week, as they gained 33.86% and 26.67% respectively, closing at N17.00 and N3.80 per share on market sentiment and full-year earnings expectation. On the flip side, Arbico and Afromedia lost 9.91% and 9.68% respectively, closing at N2.09per share and N0.28 per share on market forces.

Market Outlook

Being the last trading week of the month, with two day holiday, we expect a  mixed  sessions on profit taking and month end window dressing, alongside dividend qualification for Dangote Cement, Julius Berger and May/Baker.  We note that as expected, investors are already positioning in the healthcare and others sectors that are likely to be impacted positively as the much anticipated global and domestic economic reset begins.

Also, the possibility of continued funds inflow to the market in the new week is high due to higher yields in equity assets, consider the low rates in money market and high risk in bond market. In the meantime, investors have continued to digest the score-cards and April inflation figures released last week, as the market awaits Nigeria’s Q1 2020 GDP reports from the NBS to further help in repositioning their portfolios.

Investors also should look out for developments regarding the implementation of the CBN’s funding plan for small and medium scale businesses. 

Already, we notice that investors are taking the position in healthcare and other defensive stocks that are likely to survive this meltdown, following which there is increased transactions in them, even as global markets continue on the recovery path already, as lockdowns are gradually being relaxed.

Also, do not forget to identify and play defensive stocks among the many fundamentally sound companies, as their share prices remained depressed, making them attractive for bargain hunting by market players. This has also resulted in significant improvements in Dividend Yields of stocks, even as we note the fact that fund managers who held cash before now, may have to rethink the strategy and go for value stocks with high upside potentials.

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.

Expect a likely bargain-hunting motive, supported by the positive performance, especially with many fundamentally sound stocks remaining underpriced, and the 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.

To position for the short to long-term, this is why investors should target fundamentally sound, dividend-paying stocks, for possible capital appreciation in the coming months. 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 different Stocks for various investment objectives in 2020 and beyond are available. To obtain your pack send ‘Yes’ or ‘Stock’ to 08028164085, 08032055467, 08111811223 now.

Ambrose Omordion

CRO|Investdata Consulting Ltd





Tel: 08028164085, 08032055467