Equities

Mixed Session Ahead, As Investors Bet On MPC Outcome, Full-Year Earnings

Market Update for January 19

Profit taking on the Nigerian Stock Exchange continued Tuesday, in the midst of volatility and selling sentiment, as traders cashed out profit from the recent rally, amidst permutations as to options open to members of the Central Bank of Nigeria (CBN) Monetary Policy Committee (MPC) when they meet for the first time this year, next week. This is just as there are talks around what to expect from various sectors and companies as they prepare to unveil their numbers during the forthcoming earnings reporting season. All of the scenarios are being reviewed with a keen watch on happenings to the global oil markets, with crude trading at $55 per barrel, serving as a the much  need tonic to Nigeria’s market dynamics, while boosting investor confidence.

Yielding to selling pressure, the NSE’s composite All-Share index closed slightly bearish for the second consecutive session of back-to-back losses amidst selloffs in the banking, oil/gas and industrial goods sectors, as revealed by the day’s mixed sectorial performance. As equity prices face a growing risk of correction or pullbacks, discerning investors and market players should use any ‘dip’ opportunity to buy into fundamentally sound stocks with high dividend yields and prospect of increasing their pay-out as the market looks forward to the earnings season. 

However, with the market currently ranging or side trending to resist further decline and a strong support level of 41,000 on a very high traded volume and positive breadth, traders should play with high caution. This is given the overbought state of the market and the seeming divergence of the NSE’s index action and money flow index at the close of trading.

Nevertheless, given the trading pattern and sharp uptrend that brought the key performance index to this current level, we suggest that investors should take profit in positions they have made between 15-30% so far. 

Tuesday’s trading opened on the downside and oscillated in the mid-morning to late afternoon on profit taking and repositioning of portfolios that pushed the key performance index to an intraday low of 41,034.75 basis points, from its highs of 41.109.33bps. Thereafter, the market closed below its opening level at 41,051.63bps.

Market technicals for the day were weak and mixed, with volume traded lower than the previous day’s in the midst of breadth that favoured the bulls on a selling sentiment as revealed by Investdata’s Sentiments Report showing 77% ‘sell’ volume and 23% buy position with a total transaction volume index of 1.84 points. Also, the impetus behind the day’s performance remained relatively strong, as Money flow index fell to 55.23pts, from the previous day’s 53.90pts, indicating that funds entered the market, despite the profit taking activities and fact that the market closed lower.

Index and Market Caps

At the end of the day’s trading activities, the benchmark index slipped by 30.75 basis points, closing at 41,051.63bps after opening at 41,082.38bps representing a 0.07% dip. Similarly, market capitalization fell by N16.08bn, closing at N21.47tr, from N21.49tr, representing a 0.07% depreciation in value.

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The day’s downtrend was driven by selloffs in BUA Cement, Access Bank, UBA, UACN, Ardova, and Vitfoam, among others, cutting Year-To-Date gain mildly to 1.94%, just as YTD gain in market capitalization stood at N417.21bn, or 1.99%.

Mixed Sector Indices

The sectorial performanceindexes were mixed as NSE Banking, Industrial goods and Oil/Gas were down by 0.73%, 0.46% and 0.36% respectively, while Insurance led the advancers after gaining 6.29%, followed by Consumer goods that closed 0.53%.

Market breadth remained positive, as advancers outnumbered decliners in the ratio of 43:21; just as activities in volume and value terms were mixed, after players had exchange 738.52m shares, a slight drop from the previous day’s 758.53m units. Transaction value rose by 27.9%% to N5.34bn, from N4.17bn, even as the day’s volume was boosted by activities in Living Trust, Transcorp, Japaul Gold, Zenith Bank and BUA Cement.

NEM Insurance and Union Diagnostic were the best performing stocks for the day after gaining 10% each, closing at N2.53 and N0.33 per share, on earnings expectation and market sentiments. On the flip side, Japaul Gold and Ardova lost 9.86% and 8.63% respectively, closing at N1.28 and N18 per share, on market forces and profit taking.

Market Outlook

We expect the mixed performance, profits taking and the bull transition to continue as the NSEASI continues to range, resisting decline, just as profit booking and buying interests in undervalued and dividend-paying stocks persist ahead of the market’s major earnings reporting season. This is especially as low interest rates and oil price have so far supported the Nigerian economy and equity market. There is also the likelihood of a reversal in trend and continuation, as investors position in high yields stocks in the New Year. Also, important is the fact that technical indicators reveal overbought on the weekly and daily chart, while the 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 expected 2020 full earnings reports, while all eyes are on the outcome of next week’s MPC meeting and its outcome to give the market direction.

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

info@investdataonline.com

info@investdata.com.ng

ambrose.o@investdataonline.com

ambroseconsultants@yahoo.com

Tel: 08028164085, 08032055467

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