Mixed Trend Continue On Profit Booking, Position In Value, Growth Stocks On H1 Earnings
Market Update for August 18
The up and down movement on the Nigerian Exchange continued at the midweek with the NGX key performance index closed flat on a low traded volume and positive market breadth to halt the previous day’s gain in the midst of players analysing the further shift in the consumer price index in four consecutive months. According to data from the National Bureau of Statistics (NBS) inflation rate stood at 17.38% even as food prices continue to rise.
The seemingly sideways trend in the market revealed the portfolio adjustments by institutional investors and other players as they move from one stock or sector to another in search of value and a high margin of safety. Investors, both foreign and domestic, retail and institutional, have their eyes fixed on policy changes in the foreign exchange market and unfolding policies from the fiscal authorities, especially the impact of the Petroleum Industry Act signed into law on Monday, on the oil industry and the economy at large. Also, investors have their eyes on the half-year earnings of first-tier banks with interim dividend policies.
In those financial institutions with outstanding numbers, it is obvious that dividend yield or pay-out at this period are always small, so investors are looking to see the quality and strength of the earnings from these banks to trigger their positioning for the year-end. We note also that the nation’s banking sector is the most consistent in rewarding shareholders.
Technically, the market is forming a sideways trend, resisting a decline on low traded volume and mixed sentiment in the midst of positive broad market and bullish indicators to suggest that investors and traders are still taking position in value and growth stocks despite trading with caution.
Meanwhile, midweek’s trading opened slightly on the upside before oscillating on profit booking and position taking in high and medium cap stocks which pushed the benchmark index to an intraday low of 39,538.29 basis points, from its highs of 39,550.38bps. Thereafter it closed marginally below the opening figure at 39,545.67bps.
Market technicals were weak and mixed as volume traded was higher than that of the previous sessions in the midst of breadth favouring the bulls on mixed sentiments as revealed by Investdata’s Sentiment Report showing 61% ‘buy’ volume and 39% sell position. Total transaction volume index stood at 0.56 points, just as the momentum behind the day’s performance remained relatively strong with Money Flow Index reading 63.61points, from the previous day’s 57.08 points, an indication that some funds entered the market despite closing flat.
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Index and Market Caps
At the end of Wednesday trading, the composite NGX All-Share Index slide by 4.69bps, closing at 39,545.676bps, from its opening level of 39,550.36bps, representing a 0.01% drop, just as market capitalization fell marginally by N2.44bn at N20.60tr, from the opening value of N20.61tr, also representing a 0.01% value loss. .
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Midweek downturn was driven by selloffs in Insurance stocks and others like GTCO, FBNH, ETI, Access Bank, United Capital, Prestige Assurance, AIICO, Linkage Assurance, Mutual Benefits, Regency Insurance, and Coronation Insurance among others. These impacted mildly on Year-To-Date loss which increased to 1.80%, just as loss in market capitalization YTD rose to N452.89bn, representing a 2.15% decline from its opening value for the year.
Performance indexes across sectors were slightly bullish, except for the NGX Insurance that closed lower by 0.87%, while the NGX Consumer Goods Index led the advancers, after gaining 0.12%, followed by Banking, Energy, and Industrial Goods with 0.08%, 0.06%, and 0.04% respectively.
Market breadth was positive as gainers outpaced losers in the ratio of 19:17, while transactions in volume and value terms were mixed as investors exchanged 132.08m shares worth N2.67bn, compared to the previous day’s 110.77m units valued at N3.08bn. The day’s volume was driven by trades in Transcorp, Chams, Zenith Bank, GTCO, and Oando.
Pharma-Deko and BOC Gases were the best-performing, which gained 10% and 9.78% respectively, closing at N1.43 and N10.10 per share respectively on the positive market sentiment. On the flip side, SCOA and Prestige Assurance lost 9.66% and 8.33% respectively, closing at N1.59 and N0.44 per share, on selloffs and market forces.
We expect the mixed trend to continue on profit booking and repositioning in value and growth stocks on the strength of half-year earnings reports, while investors continue their portfolio reshuffling and studying of the corporate earnings ahead of first-tier banks results 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 as the CBN plans to launch a digital currency platform. The day’s low volume suggests that institutional investors and others are still cautiously looking at the numbers. It is noteworthy that oil price continues to oscillate in the international market; even as corporate actions and 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 global and domestic economic recovery to 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 and last quarter economic activities. 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 next month.
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