Equities

Mixed Trend Still, Amid Q1 Earnings Expectations, Economic Data, Rising Yields

Market Update for April 14

The nation’s equity market at the midweek had a mixed session, halting its negative outing for the two previous sessions on a low traded volume and marginal negative breadth as bargain hunters seemed taking advantage of the pullbacks which arose from profit taking and portfolio rebalancing, ahead of the Q1 quarterly earnings reports likely to kick off any moment from now.

Blue chip stocks look attractive on the back of their high yields as players take position after suffering losses in previous seasons, despite the fact that funds are flowing towards the risk free assets due to rising yields in the fixed income market.  The Central Bank of Nigeria (CBN) policy of crashing liquidity by mopping up funds by an upward adjusting of Treasury Bills’ rates at this point may conflict with its intention of driving growth and enhancing economic recovery through providing cheaper funds to the private sector. 

It is obvious that the nation’s stagflation is not driven by excess liquidity in the system but the cost pushed, arising from policy mismatch from the government that is fueling insecurity, unemployment and high cost of living. If these are not checked by policy makers and economic managers, it could short-live the fragile economic recovery recorded so far, as the government seems to lack the willpower to carry out structural reforms that will boost recovery and growth at the desired pace for the benefits of all Nigerians.

Monetary policy alone cannot do much to revamp the Nigerian economy of today, as the fiscal authorities without the fiscal side complementing the monetary policy actions. At the end, the high rate of borrowing from the public will translate to a high cost of financing the 2021 budget.  Equity market players are anxiously awaiting key economic data and corporate earnings to know the position of the economy, without losing sight of the likely outcome of the Monetary Policy Committee (MPC) meeting of next month, knowing that the rising inflation has been of serious concern to Nigerians.

Consequently, equity market players should invest, guided by their set investment objectives, especially entry and exit strategies to survive and profit from the expected new trend. By so doing, should the Q1 earnings reports and corporate actions fail to impact and support recovery, a big rotation in sector trends should also guide you, going into the future.

At the midweek, trading started on the downside and oscillated throughout the day on buying interests in bellwether stocks and profit taking across the medium and low priced equities that rallied recently. It pushed the benchmark index to an intraday high of 38,640.15 basis points from its lows of 38,525.58bps, and thereafter closed  marginally above  its opening figure at 38,636.15bps.

Index and Market Caps

The composite NSE All-Share Index, at the close of day trading, inched up by 34.326ps, closing at 38,636.15bps after opening at 38,601.83bps, representing a 0.09% up, just as market capitalization rose  by N18.19bn, closing at N20.22tr from an opening value of N20.2tr, which also represented 0.09% value gain.

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Wednesday’s marginal upturn was due to positioning in MTNN, Zenith Bank, Guinness, Vitafoam, FBNH, International Breweries and UACN, among others. This impacted mildly on Year-To-Date loss, which reduced to 4.06%, just as market capitalization loss stood at N872.28bn, or 3.87% below its opening value for the year.

Bearish Sector Indices

Performance indexes across the sectors were bearish, except for the NSE Consumer Goods which closed 1.24% higher, while the NSE Insurance led the decliners after shedding 4.4%, followed by Banking, Energy and Industrial Goods with 0.71%, 0.16% and 0.12% lower.

Market breadth was negative, as decliners outnumbered advancers in the ratio of 22:14; just as transactions in volume and value were up after stockbrokers crossed 278.04m shares worth N2.27bn, compared to previous day’s 208.72m units valued at N2.91bn. This volume was boosted by trades in Japaul Gold, UACN, Fidelity Bank, Access Bank and Zenith Bank

Guinness Nigeria and Meyer Paints were the best performing stocks during the session, after gaining 9.96% and 8.16% respectively to close at N26,5 and N0.53 per share respectively on market forces. On the flip side, NNFM and Fidson Healthcare lost 10% and 9.89% respectively, closing at N5.40 and N4.28per share, on profit taking and selloffs

Market Outlook

We expect the mixed trend to continue as Q1 corporate earnings start to hit the market from next week in the face of rising yields and portfolio repositioning, just as March inflation report is expected Friday, ahead of other economic data like Q1 GDP, PMI and others. Also, the market has failed to move out of its trading range, as index and price action may be the way of discounting the prospects for high cap companies as well as blue chip stocks ahead of earnings season.

The pullbacks offer bargain hunters and income investors another opportunity 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

info@investdataonline.com

info@investdata.com.ng

ambrose.o@investdataonline.com

ambroseconsultants@yahoo.com

Tel: 08028164085, 08032055467

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