Market Update for March 4
The benchmark All-Share index of the Nigerian Stock Exchange NSE fell further on Thursday, extending the bear transition for the third successive sessions on a very high traded volume, even as investors expect more corporate earnings reports in the coming days. Despite this, the numbers emanating, as well as the dividend news released so far have not impacted the market and stocks positively; with equity prices continuing to witness a free-fall and sellers dominate trades.
The prevailing trend in the market revealed liquidity and sentiment challenges, as capital continues to flow from equity to fixed income assets.
Nevertheless, this current mood with lingering price corrections in the market creates buy opportunities, especially for dividend or income investors.
It is important, however, to know that the situation may not be unconnected with the need by investors to rebalance their portfolios, as they move their funds towards the money market, because of its seeming safety.
That, notwithstanding, there are many others not comfortable with the volatility in the stock market who are migrating also, despite the fact that it offers higher yields than the prevailing rates and yields in the money and bond market in the short to medium term. The need for safety of capital, has seemingly overwhelmed the knowledge that is remains a veritable hedge against the country’s spiraling inflation, which would get worse because of the recent food blockade, the effect of which would not go away in a hurry.
However, for those not risk averse, armed with fare knowledge of how to navigate the equity market, there can be no better time to lock in for juicy returns than now. But you require the discipline to ask yourself why you are going into any particular stocks- dividend, capital appreciation, or preservation of your funds. This must also be followed by a timeframe- short, medium, or long-term.
Meanwhile, looking at the rate at which stock prices are declining, despite creating buy opportunities for discerning and dividend investors, it is also, time to go defensive and look for sectors that can hold over major support levels, using technical analysis and understanding the stage or cycle of the economy.
This will help you know sectors and individual stocks that will benefit from the seeming early recovery or expansion of the economy now that the nation has exited recession. These and more will be discussed during the oncoming Master Class on “How to create consistent cashflow in any market cycle.”
Thursday’s session started on the downside and oscillated on selloffs among blue-chip stocks and buying interests in growth and low priced equities. This situation pushed the NSE’s index to an intraday low of 39,329.13 basis points from its 39,566.70bps high, before closing below its opening point at 39,364.67bps on a wide negative breadth.
Market technicals were negative and weak, with volume traded higher than previous day’s in the midst of breadth that favoured the bears on a high selling pressure as revealed by Investdata’s Sentiments Report showing 16% ‘buy’ volume and 84% ‘sell’ position. Total transaction volume index stood at 1.09 points, just as the energy behind the day’s performance remained weak, with Money Flow Index looking down slightly at 31.81pts, from the previous day’s 32.37pts, indicating funds left the market.
Index and Market Caps
At the end of Thursday’s trading, the key performance index shed 157.49bps, closing at 39,364.67bps after opening at 39,522.06bps, representing a 0.40% decline. Similarly, market capitalization fell by N82.44bn, closing at N20.6tr, from previous day’s N20.68tr which also represented 0.40% value loss.
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The session downturn was driven by selloffs and profit taking in blue chip stocks like Ardova, Julius Berger, NB, UBA, Guinness, Oando, GTBank, Dangote Sugar, Access Bank, and Zenith Bank, among others. This impacted negatively on Year-To-Date loss which increased to 2.25%, just as the drop in market capitalization stood at N461.06bn, or 2.20% below its opening value.
Bearish Sector Indices
Performance indexes across various sectors closed lower, except for the NSE Industrial Goods that closed 0.19% higher, while the NSE Insurance index led the decliners, after losing 4.04%, followed by Banking, Consumer and Energy with 1.54%. 1.47% and 0.63%respectively lower.
Market breadth remained negative, as decliners outpaced advancers in the ratio of 47:12; just as transaction in volume and value terms were up by 101.84% and 14.29% respectively, with investors exchanging 493.17m shares worth N4.71bn, up from previous day’s 244.34m units valued at N4.13bn. Volume was boosted by trades in Universal Insurance, Zenith Bank, FBNH, UBA and Access Bank.
University Press and Morison Industry Plc were the best performing stocks gaining 9.91% and 9.09%, and closing at N1.22 and N0.60 per share respectively onmarket forces. On the flip side, Fidson Healthcare and NNFM lost 10% and 9.97%, closing at N4.41 and N6.32 per share, on profit taking and market forces
We expect the mixed trend and momentum to continue in the face of rising Treasury Bills yields, oil prices and high dividend yields during this earnings season, as the pullbacks give bargain hunters another opportunity to reposition, 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.
Also, the current undervalued state of the market offers investors 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 in the new year.
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