Mixed Trading Still, As Smart Money Swoops In On Oscillating Trend, Investors Seek Safety
Market Update for August 11
Equity prices on the Nigerian Exchange closed higher still at the midweek, extending the positive outing for a second successive session as sectoral rotation and positioning in value and growth stocks continued on lower traded volume and positive breadth.
The key performance index rallied further on buying interests in banking, telecoms, and energy stocks for safety and capital gains, with investors positioning ahead of the half-year results of the interim dividend-paying banks ended June 2021.
Technically, the NGX index action has broken out its first strong resistance level of 39,210.10 basis points on a low traded volume ahead of another major resistance level of 39,494.70bps and 39,875.66bps. A breakout of these levels will confirm a new strong trend in the market as highly capitalised stocks remain a safe haven for players, considering the impressive numbers that emanated from these companies ahead of their Q3 earnings reports expected in the last quarter of the year. Incidentally, that is also the most active quarter of the economy and the market, due to the end of the year festivity and other seasonality. Already, there is the formation of a saucer chart pattern that supports a continuation of the trend, which we need to watch as trading opened Thursday because profit taking is possible at this point or level. Below is the daily chart:
Positioning in the banks awaiting the Central Bank of Nigeria’s approval of their audited half-year earnings now is not a bad strategy, especially if you are an income investor or retiree. This is because the results released so far to the market by their peers are impressive and most companies have outperformed their forecast numbers and what they posted in the comparative period of 2020. These scorecards have a way of impacting the share prices of stocks in the short and long run as we saw in the Oil/Gas sector when Total and Conoil, among others, released their results and their share prices rallied for three or four trading sessions. We also note the improved earnings from other sectors like building materials, telecommunications, construction, Healthcare, and Services, while that of the banking industry came mixed, and that of insurance was below market forecast and expectation. This is linked to the change in the sector’s valuation, considering the bearish trend in the bond market as yield continues to recover.
Midweek’s trading started on the upside, a situation that was sustained for the rest of the session on buying interests in high and medium cap stocks which pushed the NGX’s composite All-Share index to an intraday high of 39,451.50bps, from its lows of 39,176.62bps. Thereafter it closed above the opening level at 39,448.46bps.
Market technicals were positive and mixed as volume traded was lower than that of the previous sessions in the midst of breadth that favours the bulls on strong positive sentiments as revealed by Investdata’s Sentiment Report showing 99% ‘buy’ volume and 1% ‘sell’ position. Total transaction volume index stood at 0.77 points, just as momentum behind the day’s performance remained relatively strong with Money Flow Index reading 56.70points, from the previous day’s 56.93points, an indication that fresh funds have not entered the market, despite closing higher.
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Index and Market Caps
At the end of Wednesday’s trading, the NGXASI gained 271.84bps, closing at 39,448.46bps, from an opening level of 39,176.62bps, representing a 0.68% growth, just as market capitalization rose by N141.63bn at N20.55tr, from its opening value of N20.41tr, also representing a 0.68% appreciation in value.
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The session upturn was driven by demand in stocks like Airtel Africa, GTCO, Zenith Bank, NNFM, Honeywell, Ecobank Transnational Incorporated, Oando, Fidelity Bank, Livestock Feeds, Sterling Bank, Pharma-Deko, and Neimeth Pharmaceuticals, among others. These gains impacted positively on Year-To-Date loss, reducing it to 2.03%, just as loss in market capitalization YTD also dropped to N503.54bn, representing a 2.39% decline from its opening value for the year.
Performance indexes across the sectors were slightly bullish, except for the NGX Consumer Goods that closed 0.02% lower, while the NGX Banking Index led the advancers, after gaining 0.45%, followed by Oil/Gas and Insurance with 0.08% and 0.01% respectively.
Market breadth was positive, as gainers outnumbered losers in the ratio of 20:15, while activities in volume and value terms were down as investors exchanged 181.42m shares worth N2.09bn, compared to the previous day’s 474.53m units valued at N3.98bn. Volume was boosted by trades in Transcorp Plc, Ecobank Transnational Incorporated, FCMB, Sterling Bank, and UBA.
Pharma-Deko and Neimeth Pharmaceuticals were the best-performing stocks, gaining 9.17% and 8.61%, closing at N1.19 and N1.64per share respectively on the strength of market forces and sentiments. On the flip side, FTN Cocoa and Wema Bank lost 8.89% and 7.32% respectively, closing at N0.41 and N0.76 per share, on profit-taking.
We expect the mixed trend to continue, as investors reposition in value and growth stocks to play to safe in high cap companies. As portfolio reshuffling and interpretation of the corporate earnings ahead of the July inflation, and Q2 GDP data release, as well as results from interim dividend-paying banks. Also, investors are still observing the interplay of market forces following recent developments in the FX market with the decision to stop the sale of US$ to BDC operators. The day’s mixed volume suggests that smart money is taking advantage of the oscillating trend and relatively low prices to reposition. It is noteworthy that oil price continues to oscillate in the international market; corporate actions, as well as the interim dividend possibilities, are 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 $68pb to support the global economy and stock market recovery across climates. We also expect the ongoing COVID-19 vaccination to support the 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 mixed half-year earnings.
Again, the way to go is: Target dividend-paying stocks and fundamentally sound companies with growth prospects in 2021 and beyond, 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 a 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 the coming week.
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