Market Update for July 20
The negative stance of the previous week was extended to Monday’s trading on the Nigerian Stock Exchange as investors maintained their wait and see attitude ahead of the meeting of the Central Bank of Nigeria (CBN) Monetary Policy Committee (MPC), which ended on Monday.
The committee voted to hold the key policy rates constant to allow the recent monetary and fiscal policy measures put in place play out, especially the increased liquidity due to the last Monetary Policy Rate adjustment, government’s intervention and the signing of the revised 2020 national budget into law by President Muhammadu Buhari kick off full implementation. All these are expected to drive economic activities and productivity, going forward, as discussed in our market update video at the weekend.
The benchmark NSE All Share Index closed slightly lower on a very high traded volume; this indicates that smart money is absorbing the supply, an indication that they are bullish on the market. We can, therefore expect a reversal in the down trend, depending on market sentiments and forces.
Unilever’s half-year earnings report is the first biggest year-on-year quarterly decline among those released so far to give insight as to what consumer goods and other manufacturing company reports will look like.
However, here are a couple of things to keep in mind as we go through the earnings season over the next two to three weeks: Many companies are not providing forward looking guidance, either by choice or they still don’t have enough visibility, given the rising cases of novel Coronavirus pandemic in the country. There is, and will be a wide disparity in the quality of earnings across the market and sectors.
Some companies have not been affected as much by the pandemic, and some even benefited from it. Others like the hospitality business, airlines and allied, as well as the retail sector have been crushed by it.
Meanwhile, Monday’s trading opened slightly in the green and moved up and down within session on selloffs in banking stocks and buying position in healthcare, insurance and oil sectors that pushed the composite Index to an intra-day low of 24,114.59 basis points, from its high of 24,330.06bps. Thereafter, it slipped marginally to close the day lower at 24,269.58bps.
Market technicals were weak and mixed as volume traded was higher than the previous session’s in the midst of flat breadth and mixed sentiment as revealed by Investdata’s Daily Sentiment Report showing a ‘buy’ volume of 72% and sell position of 28%. Total daily transaction volume index stood at 1.51, just as the momentum behind the day’s performance stayed weak, with Money Flow Index read 30.34 points, as against the previous 30.57ps, indicating that funds left the market through some stocks.
Index and Market Caps
At the close of Monday’s trading, the key performance index shed 18.08basis points, closing at 24,269.58bps, after opening at 24,287.66bps, representing 0.07% drop, just as market capitalization lost N9.48bn closing at N12.66tr from an opening value of N12.67tr representing 0.07% value loss.
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Monday downturn was impacted by losses suffered by banking stocks and others, Zenith Bank Access Bank, ETI, FBNH, Oando, Cutix and Neimeth Pharm, following which the NSE’s benchmark index’s Year-To-Date loss, increased to 9.58%. Also, the contraction in market capitalization YTD, rose to N231.78bn, representing a 2.34% drop from the year’s opening level.
Mixed Sector indices
The sectoral indexes closed the day mixed, with the NSE Insurance and Oil/Gas index closing higher by 0.36% and 0.32% respectively, while the NSE Banking index led the decliners after losing 0.45%, followed by NSE Industrial goods which was were down by 0.01%.
Market breadth was slightly negative as decliners outnumbered advancers in the ratio of 13:12, while transactions in volume and value terms were up by 90.09% and 42.86% respectively, after investors exchanged 305.1m shares worth N2.1bn from the previous day’s 160.5m units valued at N1.47bn. Volume was driven by trades in Sovereign Trust Insurance, UBA, Guaranty Trust Bank, Japaul Oil and Zenith Bank.
GSK and Fidson Healthcare were the best performing stocks for the day, after gaining 9.47% and 9.43% respectively, closing at N5.20and N2.90 per share on market forces and sentiment. On the flip side, Neiemth Pharm and Cutix lost 10.00% and 9.89%, closing at N1.35 and N1.64 per share respectively on profit taking.
We expect the mixed trend to continue as more earnings are expected in the market in the midst of positive news of coronavirus vaccine and MPC retaining MPR at 12.5% to allow all the recent policies impact the economy. But inconsistent government policies continue to dampen investor confidence. This is likely to support the wave of decline as pullbacks persist, creating new entering opportunities. Money flow index has continued to look down at 35.64, despite flowing from one sector to the other, seeking value in terms of low prices with high upside potentials.
This is just as economic recovery is threatened by the rising cases of the COVID-19 pandemic, ahead of the Q2 earnings reports season, which implies that opportunities are still available as sectoral rotation continues. Also, sectors that have suffered oversold, so far, offer attractive risk-reward buy-opportunities and outlook for considerable short, medium and long term investment.
For immediate liquidity or cash we advice that you trade low priced stocks with serious caution to avoid being trapped. However, the market’s high dividend yield continues to attract buying interests, as few audited and unaudited corporate earnings will hit the market, going forward. This is despite the likely continuation of selloffs. Investors are buying to increase their positions in undervalued stocks ahead of Q2 numbers. It 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.
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. 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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