Market Update for February 25
Profit taking resurfaced on the Nigerian Stock Exchange, Thursday, halting two successive sessions of bull transition on settlements for the improved rates at this week’s Treasury Bills primary auction which competed for investible funds. These happened in the midst of earnings expectations and portfolio realignments on the equities’ side for end-of the month as the market enters the peak of its earnings reporting season.
Players should therefore be on the lookout, as more companies expectedly roll in their 2020 financials, giving the market an upward push or downward pull, depending on the strength of these numbers.
With the pullbacks impacting positively on dividend yields, income investors should target ‘stocks with dividend yield of 7.5% and above in the short term, since the equity market remains the best window for hedging against the nation’s spiralling inflation.
Despite, the seeming profit booking across many of the sectors, these corrections are creating ‘buy’ opportunities for players that understand the dynamics of the market,’’’ irrespective of what is happening on the fixed income side, especially with oil price selling now above $65 per barrel and breakthroughs in vaccines will help to drive global and domestic economic recovery.
With the mixed macro-economic indices emanating from the National Bureau of Statistics (NBS) and Central Bank of Nigeria (CBN), in the face of changing market trends and trading pattern, that is now of concern to retail and institutional investors, players in the equity market should invest wisely. One way of navigating the murky waters is to be guided by your set investment objectives, particularly entry and exit strategies, to survive and profit from the expected new trend.
In that way, should the full-year earnings reports and dividend news fail to impact and support the current trend, a big rotation in sector trends would also guide you, going into the future, especially as the NSE All-Share index action is trading below in 50-Day Moving Average, after it had broken down the 14 and 20DMA on a daily time frame.
Thursday’s trading opened on the downside and oscillated throughout, on profit taking and portfolio rebalancing ahead of month-end and dividend news. These pushed the NSE index to an intraday low of 40, 088.05 basis points from its highs of 40,221.41bps, before closing below its opening figure at 40,095.49bps on a low traded volume.
Market technicals were negative and mixed, with volume traded lower than previous day’s in the midst of a negative breadth andsentiment as revealed by Investdata’s Sentiments Report showing 6% buy volume and 94% sell position. Total transaction volume index stood at 0.61 points, just as momentum behind the day’s performance remained weak, with Money flow index looking up to 18.18pts, from the previous day’s 17.64pts, indicating funds enter the market, despite profit booking.
Index and Market Caps
The key performance index, at the end of the day trading, shed 125.81bps, from its 40,221.30bps opening point, representing a 0.31% decline. Market capitalization similarly lost N65.82bn to close at N20.98tr from N21.04tr, also representing 0.31% depreciation in value.
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Thursday’s downtrend was impacted byselloffs and profit taking in stocks like, Ecobank Transnational Incorporated, UACN, Nigerian Breweries, Oando, UBA, Access Bank, Zenith Bank, and Sterling Bank, among others. This impacted negatively on Year-To-Date loss position increased to 0.44%, just as market capitalization stood at N88.60 billion, or 0.37% below its opening value. In the case of Oando, investors moved to get out of position in the aftermath of the statement of the Securities & Exchange Commission stressing that its management was not served court papers to enable it put up appearance in the case instituted by one of Oando’s shareholders based on which judgment was passed.
Bearish Sector Indices
Performance indexes across the sector were down, except for the NSE Insurance that closed 0.49% higher, while the NSE Banking led the decliners, after losing 5.61%, followed by Consumer goods, Energy and Industrial goods with 4.52%, 0.40% and 0.07% respectively.
Market breadth turned negative, as decliners outnumbered advancers in the ratio of 24:16; just as transactions in volume and value terms were down by 26.12% and 46% respectively, after players had exchanged 326.04m shares worth N3.71bn, as against previous day’s 469.56m units valued at N7.08bn. Volume for the day was driven by trades in Transcorp, Dangote Sugar, UBA, Zenith Bank and United Capital.
The best performing stocks for the session were Chams and Royal Exchange Assurance, which notched 9.09% and 8% respectively, closing at N0.24 and N0.27 per share, on market forces. On the flip side, Lasaco Assurance and Fidson Healthcare lost 9.68% and 8.41%, closing at N1.12 and N4.90 per share, on free fall after share reconstruction without earnings and fundamental to support the new price and profit booking.
Market Outlook
We expect the mixed trend and momentum to continue as bargain hunters take advantage of the pullbacks, as more audited numbers are expected to roll in, with the expectation of the current divergent of oil price rallying and NSE index action looking down to correct any moment from now. Consequently, better dividend yield occasioned by price corrections that had created entry opportunities for discerning investors ahead of earnings expectations, will attract more funds to the market in a short term.
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.
Again, 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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Ambrose Omordion
CRO|Investdata Consulting Ltd
ambrose.o@investdataonline.com
Tel: 08028164085, 08032055467
