Market Update for May 27
Trading activities on the Nigerian Stock Exchange at the midweek, the first for the week after the public holiday declared on Monday and Tuesday to mark the eid-el-fitr, the end of the Moslem holy month of Ramadan, was another very volatile session, as the market continued its bullish outlook. Demand for banking stocks soared, signaling an end-of-the-month window dressing and portfolio rebalancing by fund managers.
This impacted positively on the composite All-Share index, as it closed marginally higher on a very high traded volume that indicates a bearish pattern reversal which supports a pullback with the market recording a month-to-date gain of 9.56%.
The sustained optimism towards oil price recovery, driven by increasing demand as lockdowns are been lifted across the globe and crude oil producers are keeping to the production cut agreement needed to support recovery. This has also boosted the sentiment behind the current equity market trend in Nigeria, despite the weak economic indices released by Nigeria’s National bureau of Statistics (NBS) last week pointing the direction of the economy. Recall that the NBS reported April inflation rate of 12.34%, from 12.24% in March, just as GDP for Q1 2020 slowed down to 1.87%, a trend that will likely be repeated in Q2 and Q3.
The market, on Wednesday signaled an end of the party with higher transaction volume on a mixed sentiment.
Midweek’s trading started on the downside as the share prices of Dangote Cement and May & Baker were adjusted for dividend, as the up and down movement pushed the NSE Index to an intraday high of 25,469.93 basis points, from a low of 25,054.11bps, before closing flat at 25,221.29bps on a positive breadth.
Midweek’s market technicals were positive and mixed, as volume traded was higher than the previous session’s, with breadth favoring the bulls, and mixed sentiments as revealed by Investdata’s Daily Sentiment Report, showing a ‘buy’ position of 40% and sell volume of 60%. Total daily transaction volume index stood at 1.94, while the momentum behind the day’s performance stayed strong, as Money Flow Index read 83.5points, up from the previous 82.40ps, indicating funds are entering some stocks.
Index and Market Caps
The key performance index at the end of Wednesday’s trading, gained marginal 16.48bps, closing at 25,221.25ps, from the opening level of 25,204.75ps, representing a 0.07% rise, while market capitalisation inched climbed N8.59bn up, closing at N13.14tr, from its opening value of N13.14bn which represented a 0.07% value gain.
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Midweek’s upturn was impacted by gains and buying interests in Dangote Cement, Nigerian Breweries, Guaranty Trust Bank, Zenith Bank, Stanbic IBTC, Access Bank, UACN, Lafarge Africa Dangote Sugar,, UBA, FBNH and Honeywell. This impacted positively on the NSE’s benchmark index, reducing its Year-To-Date loss to 6.04%, while market capitalization YTD decline stood at N52.28bn, representing a 0.07% drop from the year’s opening level.
Mixed Sector Indices
The sectorial performance indexes were largely bearish, except for the NSE Banking and Consumer Goods indexthat closed 5.36% and 3.09% higher respectively, while the NSE Industrial Goods led the decliners, after losing 1.98%, followed by the NSE Insurance and Oil/Gas indices that dropped 0.56% and 0.34% respectively.
Market breadth, remained positive as advancers outpaced decliners in the ratio of 32:11, while activity in volume and value terms were up by 124.09% and 94.04% respectively, as investors exchanged 581.61m shares worth N5.59bn; from the previous day’s 259.58m units valued at N2.88bn. This volume was driven by trades in FBNH Holdings, Zenith Bank, Guaranty Trust Bank UBA and Transcorp.
Nigerian Breweries and Stanbic IBTC were the best-performing stocks for the session after gaining 10% and 9.98%, closing at N43.45 and N35.80per share respectively on market forces and sentiment. On the flip side, Ardova and Regency Insurance lost 10% and 8.7% respectively, closing at N14.40 and N0.21 per share respectively, on weak earnings report and market forces.
We expect a mixed trend on profit-taking as investors cash out gains following the month to date rally of 9.56%, as investors interpret corporate earnings and economic data. The MFI is showing improved institutional investors activity in the midst of the bullish oil prices and rising new cases of coronavirus as number of infected people cross 8000 and deaths above 230. Also, investors and analysts are awaiting the outcome of Thursday’s CBN Monetary Policy Committee meeting which begins in Abuja.
However, the market’s high dividend yield continues to attract buying interests, while more audited and unaudited corporate earnings will hit the market, going forward, despite the likely continuation of selloffs. Investors are buying to increase their positions in undervalued stocks ahead of dividend declaration and Q1 numbers. This 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.
Also, investors and traders are positioning amidst the changing sentiments in the hope of improved liquidity and positive economic indices that may reverse the current trend. We see investors focusing on the upcoming full-year earnings season, targeting companies with strong potentials to grow their dividend on the strength of their earnings capacity.
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.
This was noted in the 10 golden stocks and trading ideas for 2020, as discussed extensively during the Investdata 2020 Traders & Investors Summit held in Lagos.
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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