Mixed Trend On Profit Taking, Portfolio Realignments On Q1 Earnings, Economic Data

Market Update for May 11

Following the low price attraction and impressive Q1 numbers from companies listed on the Nigerian Exchange, in the midst of a seeming economic recovery, which is being blighted by the rising cases of insecurity across the country, many traders and investors are returning to the equity space. This is despite the rising yields in the fixed income market, amidst the galloping inflation that is throwing real rate of return into a deeper negative.

So, the composite NGX All Share Index maintained its mixed trend and bull-run for a third successive session as more players positioned ahead of the expected economic data from the National Bureau of Statistics and Central Bank of Nigeria. These, just as the sector rotation are giving an insight already into what should be expected of these companies at the end of June 2021.  Traders seem to be opting for more low cap stocks, most of which now lead the advancers table as less amounts are needed to change their prices up or down.

Already, the market is attempting to breakout the next resistance levels of 39,450.68 basis points and 39,572.18bps on the recent recovery moves, and the less-than-average traded volume.

As a result, the following: Zenith Bank, Access Bank, Presco, Dangote Cement, Eterna, Vitafoam Fidelity Bank, UBN, Livestock, Honey well Flour, UBA, AXA Mansard, CHI, Mutual Benefits and Japaul Gold, have become investors’ toast, set to breakout their different resistance price levels. The market will be impacted by the expected economic data and repositioning of portfolios on the strength of corporate earnings ahead of the half-year results in early Q3.

As events unfold, market players should target companies with earnings growth, quality and value that can match Investdata’s Earnings Gauges while investing wisely, allowing investment goals to guide their decisions, especially entry and exit strategies necessary to ensure they not only survive, but profit from the expected new trend. Be guided also by current price patterns and money flow index now supporting a trend continuation as funds flow in and out of the market.

Meanwhile, Tuesday’s trading opened on the upside due to continued position taking in undervalued but fundamentally sound stocks that posted improving Q1 numbers, alongside profit taking, as the market oscillated to push the NGX index to intraday high of 39,436.28, from its lows of 39,280.91bps. Thereafter, it closed above its opening level at 39,382.96bps.

The session’s technicals were positive and mixed, as volume traded was lower than previous day’s in the midst of positive breadth and high buying interest, as revealed by Investdata’s Sentiments Report showing 66% ‘buy’ volume and 34% sell position. Total transaction volume index stood at 0.99 points, just as the impetus behind the day’s performance was relatively strong with Money Flow Index reading 64.57pts, from the previous day’s 64.88pts, indicating that funds left the market on a daily chart while looking up on a weekly to signal entrance of funds.

Index and Market Caps

At the end of the day’s trading, and as the market closed for the holidays declared by the Federal Government on Wednesday and Thursday to mark the end of the Ramadan fast, the benchmark NGXASI, inched up by 70.22bps, closing at 39,382.96bps. It had opened at 39,312.74bps, representing a 0.18% up, just as market capitalization gained N36.57bn, closing at N20.53tr, from an opening value of N20.49tr, also representing a 0.18% appreciation in value.

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The day’s upturn was due to position taking in Dangote Cement, Presco, Zenith Bank, Access Bank, Fidelity Bank, UBA, and AXA Mansard, among others. This impacted positively on Year-To-Date loss, reducing it to 2.20%, while the decline in market capitalization YTD dropped to N529.46bn, representing a 2.51% below its opening value for the year.

Mixed Sector Indices

The sectorial indexes performance were mixed, with the NGX Insurance and Industrial Goods closing 1.27% and 0.70% higher respectively, while Banking led the decliners after losing 0.33%, followed by Oil/Gas and Consumer goods with 0.14% and 0.02% lower.

Market breadth remained positive, as advancers outnumbered decliners in the ratio of 21:17; just as activities in volume and value terms mixed, as volume dropped by 8.5% to 296.6m shares from 324.31m units on Monday, while transaction value rose by 2.5% to N3.36bn from the previous day’s N3.28bn, just as volume was boosted by trades in Access Bank, UACN, Fidelity Bank, Zenith Bank and Transcorp.

Meyer and Presco were the best performing stocks, gaining 9.62% and 9.58% respectively, closing at N0.57 and N78.90 per share on market forces and impressive Q1. On the flip side, Regency Insurance and Honeywell lost 8.82% and 5.83% respectively, closing at N0.31 and N1.13 per share, on profit taking and selloffs.

Market Outlook

We expect the mixed trend to continue on profit taking, positioning and portfolio rebalancing on the strength of the numbers released recently amidst the rising infection rate of the novel coronavirus across the globe and the high yields in the fixed income market. We also expect economic data like the 2021Q1 GDP report, April Purchasing Managers’ Index and inflation among others to reveal the state of the economy and give direction. The banking sector remains attractive on the back of the prevailing low prices, despite the Q1 mixed numbers.

Also, the market just started a new uptrend as it trades above the 14 and 20-Day Moving Average. Note that the market may discount the political and insecurity challenges, ahead of economic reports.

However, the pullbacks offer bargain hunters and income investors fresh opportunities to reposition in high dividend yields and undervalued stocks, while looking out for quarterly numbers that would 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 2020 full numbers and expected 2021 Q1 earnings reports, until the next MPC meeting in May.

The NSE’s index action and indicators are heading in the same direction   on a low traded volume and positive buying sentiments in the midst of rising yield in bond and TB.

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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Ambrose Omordion

CRO|Investdata Consulting Ltd




Tel: 08028164085, 08032055467

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