Equities

Mixed Trend Ahead, Ahead Of Earnings, As Investors Watch Fixed Income Yields, Oil

Market Update for the Week Ended March 12 and Outlook for March 15-19

It was another bearish week on Nigerian Stock Exchange, despite witnessing a mixed trend, and thereby extending its downtrend for the sixth successive weeks of selloffs and price correction at the peak month of 2020 full year earnings reporting season. The influence of highly capitalized stocks and rekindled interest among bargain hunters at the prevailing prices continues to impact positively on market breadth. This has reduced the wide range of negative sentiments, just as dividend yields of many stocks improved to make equities attractive for dividend investors.

We note the changing price pattern and sentiment in the market, even as investors look out for more corporate earnings and economic data, one of which the February consumer price index scheduled for release any moment from now from the National Bureau of Statistics. Inflationary pressure is expected to wax stronger due to the continued hike in pump price of fuel with direct effects on cost of transportation of goods and services. We expect that the inflation rate will maintain and uptrend to keep returns in the fixed income in real red.

During the week, worried investor and traders stayed on the fence to watch while pullbacks and corrections continued. Discerning and value investors should therefore keep their gaze on emerging opportunities, taking advantage of the low prices to position in high dividend-paying companies. Despite the continued drop in the market index, the situation reveals some measure of confidence among players.

As such, it is important to let your investment objective: entry and exit strategies guide you to survive and profit from this trend, if the full-year earnings reports and dividend news fail to drive and change the trend, a big rotation in sector trends should also guide you, going into the future.

Do not allow, the up and down movement in high cap stocks that rallied sharply in previous year to influence your decisions, because their price movements affect the NSE’s index action. It is necessary to focus on sectors and high yield dividend-paying stocks with strong growth prospects in 2021.

Movement Of NSEASI

The composite index recorded a mixed performance of two up markets and three sessions of losses last week to continue the correction and pullbacks mode, driven by economic headwinds and uncertainties. Added to this is the rising yield in treasury bills and bond market, with NTB primary auction rate moving to 6.5% from 5.5% for 364 days. Portfolio realignment have continued in the face of rising oil prices in the international market and earnings season as many company’s numbers and dividend news had beat market expectation but fail to support share prices due to weak liquidity and mixed sentiment. 

The week opened on a positive note to halt the previous negative outing as benchmark index recorded 0.18% up, but this trend reversed on Tuesday when the index lost 1.84% on selloffs among the high cap stocks. This trend was short-lived by midweek, with the index gaining 0.63% before yielding to selling pressure on Thursday and Friday the when the key performance index closed 0.60% and 0.08% lower respectively.

This brought the week’s total loss to 1.74%, much more than previous week’s 1.18% decline, on low traded volume and negative breadth.  Bringing the market total correction from its peak to 9% loss and YTD loss position standing at 4.03%.

Subsequently, the key performance index shed 683.13 basis points during the week, closing at 38,648.481bps, after opening the week at 39,331.61bps. Within the period, the index touched an intra-week low of 38,486.13bps, compared to a high of 39,412.27bps, a situation attributed to selloffs among the high cap stocks like MTNN, Dangote Cement and others. Also, market capitalization lost N357.41bn. to N20.22tr, from the previous weekend’s N20.58tr.

The advancers’ table for the period under review was dominated by low priced stocks as selloffs hits high and medium cap equities, with the trading and price pattern revealing selloffs and accumulation in some companies in the midst of mixed sentiment as price adjustment in the share price of United capital, Zenith Bank and Nigerian Breweries further depressed the market the period.

During the period, decliners outpaced advancers in the ratio of 38:35 on a selling sentiment and weak momentum as Money Flow Index read 54.01bps, down from 58.78 points in the previous week. During the week also, three companies released their earnings reports, one of which was the audited 2020 full-year results from United Bank for Africa, with the directors offering dividend reward of 35 kobo, while the two others are unaudited from Jaiz Bank and Lasaco Assurance.

NSEASI WEEKLY CHART MOVEMENT

The bearish trend of the NSE’s index action continued on negative outing and volatility in the midst of changing price patterns on mixed sentiments, as dividend investors accumulate positionsin dividend paying stocks as more 2020 financials hit the market. Also, the index has broken down the 14-day moving average and is above the 20, 50 and 200-DMA on a weekly chart, despite breaking down the 40,000-mark strong support level on less than average traded volume and selling sentiments. This is likely to reverse as more players’ position for the rest of the month in expectation of earnings and quarter end repositioning ahead of Q2.

Nevertheless, it is expected that the market will rebound at any time soon especially, as more listed companies releases their numbers to the market and trading above the 38,461.34bps level.

The strong support level to watch out for on the NSE is within the 38,000 and 38,461.46bps, and a breakdown of these levels, will attract new positioning by traders. This is coming at a t time crude oil is trading above $69 per barrel at the international market, while the government officials have kick start the vaccination by being vaccinated on the national television to dismiss   fear or rumor about the vaccines, 

However, we envisage a mixed outlook for the rest of Q1, while not ruling out profit booking as its ongoing, especially since the market had recorded an uptrend last year.

Our mixed outlook is hinged on such factors as the possible impact of the corporate earnings, mismatch policies of government and Central Bank of Nigeria as COVID-19 vaccine first batch importation are being distributed among the states. There are also other factors like 2021capital budget, implications of oil prices trading above $69 per barrel on the nation’s revenue, just as Money Flow Index and MACD are bearish on a weekly chart.

Mixed Sectoral Indices

Performance indexes across the sectors were mixed, as NSE Insurance, Consumer goods and Energy, closed higher by 2.84%, 2.18% and 0.59% respectively, while NSE Banking led the decliners after losing 5.75%, followed by Industrial goods thatclosed 0.15% lower.

The general market’s outlook remains dicey and mixed in the short-term; following which investors should take short and medium-term positions, while diversifying their portfolios along long-term trades to protect capital.This, they can do, by considering sectors with high upside potentials on the strength of earnings and policy influence.

The recent market pullbacks call for portfolio adjustments and realignments, as unaudited and audited numbers from some companies and sectors will expectedly come mixed, given the negative impact of the COVID-19 pandemic and the arson that followed the #EndSARS protests on full-year results, as revealed by the macroeconomic indices.

Activities in volume and value terms were down during the week by 19.62% and 20.85% respectively, as players transacted 1.68bn shares worth N23.54bn, compared to previous week’s 2.09bn units valued at N29.74bn. Volume was driven by trades in Financial Services, Consumer and Industrial goods sectors, particularly UBA, FBNH, Zenith Bank, Champion andTranscorp.

Champion Breweries and Regency were the best performing stocks in the week gaining 45.34% and 22.22% respectively, closing at N2.44 and N0.33 each on market forces, while  Eterna and Meyer lost 18.95% and 18% respectively, at N4.62 and N0.41 per share on profit booking. 

Market Outlook

We expect the mixed trend to continue as more corporate earnings hit the market in the face of rising fixed income market yields, oil prices and high dividend yields during this earnings season. Also, the pullbacks offer bargain hunters and income investors another opportunity to reposition in value and growth stocks that are underpriced, while more companies release their full-year numbers to support recovery. This is based on the fact that the rising fixed income yields may not be enough to scare all investors away from the equity market.

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. This is especially given the rising oil prices that have so far supported the economy and equity market, despite the seeming improvement in the fixed income yield which had remained at negative real rate of return due to the subsisting high inflation.

However, the strong and faster recovery may continue, depending on market forces, going forward, as propelled by expected 2020 full earnings reports, until the next MPC meeting in March.

The NSE’s index action and indicators are in divergence on a low traded volume and positive buying sentiments.

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