Market Update for August 04
The seeming uptrend on the Nigerian Stock Exchange (NSE) was strengthened on Tuesday, extending the bull transition for the third consecutive trading session amidst the wobbling intraday pattern and outpouring of more half-year earnings reports that beat expectation. There also an increasing accumulation of banking and insurance stocks on the back of their impressive numbers and the expected interim dividend that have supported the prices of Zenith Bank, GTBank, UBA, Stanbic IBTC and Access Bank.
Positive sentiments for Q2 numbers continue to push the market up as revealed by the technicals, despite cautious trading activities as indicated by the low traded volume. Technically, the NSE index continued to trade above the 20 and 50-Day Moving Average to support recovery and signal a rally opportunity for discerning investors.
Tuesday’s trading started out green and oscillated throughout the session on buying interests and selloffs in companies that posted negative half-year earnings. This pushed the key performance index to an intra-day high of 24,841.94 basis points, from its low of 24,650.16bps, before finishing higher at 24,841.94bps on a positive breadth.
Market technicals for the session were positive and mixed with volume traded lower than the previous day, just as there were positive breadth and sentiment as revealed by Investdata’s Daily Sentiment Report showing a ‘buy’ volume of 100%. The total daily transaction volume index stood at 0.82, just as momentum behind the day’s performance stayed weak, with Money Flow Index reading 48.09 points, as against the previous 41.58ps, indicating inflow of funds into equity assets.
Index and Market Caps
At the end of Tuesday’s trading, the composite All-Share index (NSEASI) gained 75.82bps, to close at 24,841.94bps from 24,766.12bps, representing a 0.31% up, just as market capitalization inched N39.55bn up at N12.96tr, from the opening value of N12.92tr which represented 0.31% value gain in investors’ portfolios.
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The day’s advancement was driven by value gain by heavyweights such as MTNN, Seplat, Flourmills Nigeria, Guaranty Trust Bank, Zenith Bank, and Nigerian Breweries. This impacted positively on the NSE’s benchmark index, reducing the Year-To-Date loss to 7.45%.
Bullish Sector indices
The sectorial performance indexes were largely bullish except for the NSE Industrial Goods, which closed slightly down at 0.03%, while the NSE Insurance led the advancers after gaining 2.70%, followed by the NSE Banking, Oil/Gas and Consumer Goods indexes which were up by 1.58%, 0.23% and 0.07% respectively.
Market breadth remained positive, as advancers outnumbered decliners in the ratio of 23:10, while activities in volume and value terms were mixed with volume dropping by 17.17% to 154.47m shares traded, from the previous day’s 186.48m units, while value climbed 11.28% up to N1.46bn, from Monday’s N1.31bn. This volume was boosted by trades in Transcorp, FBNH, Lafarge Africa, Nigerian Breweries and Custodian Investment.
AXA Mansard Insurance and UACN were the best performing stocks of the session, after gaining 9.90%and 8.70% respectively, closing at N1.58 and N6.85 per share on improving numbers and sale of 51% of its holding in UACN Property to Custodian Investment. On the flip side, CAP and Total Nigerian lost 9.90% each to close at N15.40 and N79.10 per share respectively on unimpressive earnings and selloffs.
We expect the mixed intraday trading and positive sentiment on Q2 numbers to continue as crude oil price sustained an uptrend, while portfolio rebalancing continued on the strength of half-year earnings released so far, in the midst of the March full-year accounts and interim dividend expectations.
Also, the impact of positive news of a Coronavirus vaccine and CBN policies on the economy, just as investors are worried about inconsistent government policies which have continued to dampen confidence.
This is likely to support volatility, thereby creating new entering opportunities. Money flow index continues to look up at 41.58 despite flowing from one sector to the other, seeking value in terms of low prices with high upside potentials.
This is just as economic recovery is threatened by the rising cases of the COVID-19 pandemic, as earnings reporting season is gradually coming to end, which implies that opportunities are still available as sectoral rotation continues. Also, sectors that have suffered oversold so far offer attractive risk-reward buy-opportunities and outlook for considerable short, medium and long term investment.
For immediate liquidity or cash, we advise that you trade low priced stocks with serious caution to avoid being trapped. However, the market’s high dividend yield continues to attract buying interests, as few audited and unaudited corporate earnings will hit the market, going forward. This is despite the likely continuation of selloffs. Investors are buying to increase their positions in undervalued stocks on H1 numbers. It is also against the backdrop of the fact that the capital wave in the financial markets may persist in the midst of relatively low-interest rates in the money market, high inflation, and unstable economic outlook for 2020.
Again, the current undervalued state of the market offers 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 going forward. 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.
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