Mixed Sentiment On NGX, Amidst Quarter-end Window Dressing, Earnings Expectations

Market Update for June 28

The bears continued to dominate on the Nigerian Exchange on Monday, despite the high volatility witnessed during session as the benchmark index recorded another decline on a low traded volume and negative breadth.

The mixed sentiment and oscillating trend may likely continue in the midst of quarter-end window dressing and earnings expectations as players watch for a clue of where the equity prices and yields in the fixed income markets are heading in the second half of the year.  This is due to the recent pullbacks in the prices of highly capitalized stocks due to selloffs, profit taking and sector rotation.

Despite the mixed macroeconomic indices, we expect the bulls to return to the market to  reposition in dividend paying stocks, ahead of the half-year earnings reporting season and dividend declarations.  However, we advise investors and traders to position wisely in fundamentally sound stocks with basic positive technical chart patterns and sentiments.

Technically, the NGX index action has formed a double zigzag and bottom that supports an uptrend, but requires volume and a clear candlestick formation to confirm direction which Tuesday’s trading should offer insights into, being the eve of the last trading session in the month of .June. Market recovery at this point may be powerful depending on the state of the expected numbers with possibility of maintaining what we saw in 2020 and the Q1 corporate earnings. 

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Meanwhile, Monday’s trading started in the green till midday before oscillating for the rest of the session on position taking and selloffs that push the composite index NGXASI to intradaylow of 37,585.25 basis points from its highs of 37, 678.13ps. 

Index and Market Caps

The key performance index, at the end of trading, shed 73.01bps, closing at 37,585.25bps, from an opening level of 37,658.26bps, representing a 0.19% drop, just as market capitalization fell by N3432bn, closing at N19.59tr, from its opening value of N19.7tr, representing a 0.17% value loss. The difference resulted from the additional 8.9bn shares of Mutual Benefits Assurance listed on NGX.

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Monday’s downtrend was driven by selloffs and profit taking in Zenith Bank, FBNH, Presco, BOC Gases, Conoil, Africa Prudential, and Honeywell, among others. This impacted negatively on Year-To-Date loss, cutting it to 6.67%, while the drop in market capitalization YTD stood at N1.46tr, representing a 6.95% drop from its opening value for the year.

Mixed Sector Indices

The sectorial performance indexes were mixed, as the NGX Oil/Gas and Banking closed 0.35% and 0.02% lower respectively, while the NGX Insurance led the advancers after gaining 0.22%, followed by Industrial and Consumer Goods with 0.07% and 0.01% higher respectively.

Market breadth turned negative as losers outnumbered gainers in the ratio of 18:13, while activities in volume and value terms were mixedafter investors exchanged 163.50m shares worth N3.44bn. Volume was driven by trades in FBNH, UBA, GT HoldCo, MTNN and Zenith Bank.

Ikeja Hotel and Fidson Healthcare were the best performing stocks after gaining 10% and 7.91% respectively, closing at N1.10 and N6.00 per share respectively on market forces and earnings expectation.  On the flipside, BOC Gases and Royal Exchange lost 9.95% and 7.94% respectively, closing at N9.50 and N0.58 per share, on selloff and profit taking.

Market Outlook

We expect reversal in trend on recent chart pattern formation that support an uptrend as we wait to confirm the trend Tuesday on market forces, as bargain hunters take advantage of pullbacks to reposition ahead of the quarter-end and earnings season. It is noteworthy that oil price continues its recovery at the international market with full-year and interim dividend possibilities 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 $73pb to support global economic and stock market recovery across climates. We also expect the ongoing COVID-19 vaccination to support 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 Q1 mixed numbers.

Again, the way to go is: Target dividend-paying stocks and fundamentally sound companies with growth prospects in 2021, looking the way of mispriced equities ahead of interim dividend announcement. This is especially given that despite the seeming improvements, fixed income yield continues to offer 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 in July.


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