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Mixed Trend May Linger, As Investors Reposition For Dividends

Tuesday’s trading activities on the Nigerian Exchange experienced a downtrend, as the composite index closed slightly lower on profit booking, halting seven successive sessions of bull transition and creating opportunities for new entry ahead of the major earnings reporting season. This is likely to kick off with the submission of unaudited Q4 numbers any moment from now.

The pullback and negative sentiment resulted from profit taking that hit highly capitalized stocks and dividend paying companies which had rallied recently in expectation of their 2021 full-year financials. 

Despite, the profit taking and selloffs that just resurfaced on the exchange at the end of Tuesday’s trading, there is always a bull sector or market somewhere, even when stocks are witnessing selloffs everywhere else. There will be money to make somewhere. If the NGX is down, one sector might be up, but these things don’t just change every day. They go in trends and sector management or rotation is the key to finding the best stocks and sectors that will go up, not just for a day or week, but for months and years. 

How does it work, because 80% of gains come from being in the right sector, while another 80% of the gains from a stock is made because of the sector it is in. The more a sector gets into favour, the higher the PE ratio in that sector. That is why market correction, or pullbacks are always as much as 35 to 50% sometimes. It’s because PEs really reflect price. The PE of many stocks today are below 15, suggesting that these stocks have high upside potentials.  

Technically, the NGX index’s action had a pullback on a low traded volume to slowdown recovery and short-live the bull run as revealed by the candlestick at the end of the day’s trading, despite the index trading above the 20 and 50-Day Moving Average. Momentum indicators for the day were positive and mixed, just as the ADX read 28.60, RSI closed above 50 at 69.07 and Money Flow Index fell to 66.70 points on the daily chart. The continuation of this trend depends largely on the interplay of market forces and flow of funds into the equity space, as the fixed income market yields direction remains unclear and flat, with the first TB auction in 2022 opening Wednesday. 

Tuesday’s trading started slightly in the upside and rallied before pulling back on profit booking in Nestle, Dangote Cement, and NB among others, which pushed the benchmark index to intraday low of 43,855.34 basis points, from its highs of 44,083.08bps. Thereafter, the index closed slightly below its opening point at 43,859.30bps.

Market technicals were negtaive and weak as volume traded was lower than the previous day’s in the midst of breadth favoring bears, and selling pressure as revealed by Investdata’s Sentiment Report showing 98% sell volume and 2% buy position. The total transaction volume index stood at 0.87 points, just as the energy behind the day’s performance remained relatively strong. Money Flow Index was down at 66.70points, from the previous day’s 73.47points.  

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Index and Mkt Cap Movement 

The key performance index NGXASI, at the end of Tuesday’s trading slipped by 37.83 basis points, at 43,859.30bps after opening at 43,897.13bps, representing a 0.09% drop, just as market capitalization fell by N20.38bn, closing at N23.63tr, from the opening value of N23.65tr, also representing 0.09% depreciation in value.

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The session’s downturn was attributed to profit taking in Nestle, Dangote Cement, Nigerian Breweries, Lafarge Africa, United Capital, UBA, Nascon, NGXGroup and Unilever, among others, which impacted mildly on Year-To-Date gain, reducinh it to 2.68%. Market capitalization growth stood at N1.58tr YTD, representing a 5.49% from the opening level for the year.

Mixed Sector Indices 

Performance indexes across the sectors were mixed, as the NGX Oil/Gas and Banking indexes closed 0.95% and 0.16% higher respectively, while the NGX Consumer goods index led the decliners, after shedding 4.76%, followed by Insurance and Industrial Goods with 2.14%  and 0.27% respectively.

Market breadth turned negative as losers outnumbered gainers in the ratio of 26:17, while activities in volume and value terms were down after stockbrokers crossed 294.54m shares worth N6.77bn, compared to previous day’s 311.25m units valued at N8.64b. Volume was driven by trades in Transcorp, BUA Foods, FBNH, GTCO and Zenith Bank, GTCO and Access Bank.

The best-performing stocks for the session were BUA Foods and Eterna, which gained 10% and 5.09% respectively, closing at N64.35 and N5.57 per share respectively, owing to the sustained and positive investor sentiments for BUA Foods and energy stocks. On the flip side, Mutual Benefit Assurance and Berger Paints  lost 10% and 9.77%, closing at N0.27 and N7.70 per share, purely on profit taking .

Market Outlook

We expect mixed trend to linger on bargain buying and repositioning in dividend paying stocks ahead of 2021 Q4 and full year unaudited earnings reports that may start hitting the market any moment from now. Also noteworthy is the first TB auction in 2022 that kicks off Wednesday, as oil prices remain above $80 at the international market, while the International Monetary Fund is calling for hike in interest rate and further devaluation of Naira. Already, two companies made their corporate actions available to the market, announcing a growth in their dividend payout to reflect the numbers posted.  Also, inflow into equity space is looking up slowly on changing investment decision to keep this trend ahead of new year holiday.  As market players digest economic data and happenings in fixed income market after the NGX index action retraced to trade above its 50-Day Moving Average on a low buy volume in the face of assets rebalancing and seasonality likely to influence stock prices ahead of year-end window dressing.

The relatively low volume traded in the midst of retracement is creating new buy opportunities on the strength of the Q3 numbers. Also, candlestick formation and volume traded during the session revealed that institutional players are not buying yet.  It is equally noteworthy that during a ranging market many players seat on the fence waiting for a breakout or down before jumping into any position.  Even as many stocks are trading within their buy ranges, a situation expected to attract more funds into the stock market, given the Dividend Yield capable of serving as a hedge against inflation

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Ambrose Omordion

CRO|Investdata Consulting Ltd

info@investdata.com.ng

ambrose.o@investdataonline.com

ambroseconsultants@yahoo.com

Tel: 08028164085, 08179547605

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