Mixed Trends Ahead, Amidst Profit-taking, Readjustments, As Investors Await Inflows

Market Update for December 2

Midweek’s trading activities on the Nigerian Stock Exchange closed lower on increased volatility and mixed sentiment, halting six consecutive sessions of winning streak on improved traded volume. The market’s pullback was attributed to profit booking and portfolio realignments, ahead of seasonal trends and expectations. 

Recall we predicated in our outlook for December that trading in this final month of the year will witness mixed trends and performance and close positive nonetheless, amidst an oscillating trend which creates buying opportunity ahead of year-end and the 2021 earnings season. This has always been the peak of corporate actions that drive stock prices, especially as yields in other investment windows remain low.

As we maintained stated previously, leading market fundamentals within the new month are: full-year window dressing and the Santa Claus rally. That is why we advise investors and traders to go for stocks with stronger earnings capable of supporting payout and are trading at a high margin of safety.

The oscillating oil price and increasing number of COVID-19 pandemic vaccines discoveries will support global and domestic economic recovery, even a Nigeria’s central bank continues to adjust policies aimed at driving more credits towards the private sector, thereby boosting industrial outputs to control the rising inflation.

Meanwhile, midweek tradingstarted slightly on the downside, and was sustained throughout, despite oscillating between mid-morning to late afternoon on profit taking and portfolio reshuffling. This pushed NSE index to an intraday low of 35,031.85 basis points, from its high of 35,172.58bps, before closing the day below the opening figure at 35,056.82bps on a negative breadth.

Market technicals were negative and mixed, with higher volume traded when compared to the previous day in the midst of breadth that favoured the bears on a selling pressure, as revealed by Investdata’s Sentiment Report showing 82% ‘sell’ volume and 18% buy position. Total transaction volume index stood at 0.74 points, just as the impetus behind the day’s performance was relatively strong with MFI looking down and reading 60.55, from the previous day’s 69.41 points, an indication that funds left the market to reflect profit taking.

Index and Market Caps

At the end of Wednesday’s session, the Nigerian Stock Exchange’s All-Share Index shed 90.80bps, closing at 35,056.82bps, representing a 0.26% drop, after opening at 35,147.62bps; just as market capitalization fell by N41.97bn to N18.32tr, after opening at N18.38tr, which also represented 0.23% value loss.

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Midweek’s downturn was attributed to profit taking and losses suffered by stocks likes Guaranty Trust Bank, Zenith Bank, Flourmills, Nigerian Breweries, CAP, Oando, FCMB, C & I Leasing, and AXA Mansard, among others. This impacted negatively on Year-To-Date gain which reduced to 30.60%, while market capitalization YTD gain stood at N5.36tr, representing a 41.40% growth over the opening value.

BearishSector Indices

Performance indexes across the sectors were bearish, except for the NSE Insurance that closed 0.29% high, while NSE Banking led the decliners after losing 0.80%, followed by the NSE Oil/Gas, Consumer and Industrial goods that were down by 0.72%, 0.69% and 0.02% respectively.

Market breadth was negative, with decliners outnumbering advancers in the ratio of 22:19, while transactions in volume and value terms were up by 19.72% and 61.36% respectively, as investors exchanged 368.91m shares worth N5.49bn, from previous day’s 308.18m units, valued at N3.4bn. Volume was driven by trades in Access Bank, FBNH, Zenith Bank, Guaranty Trust Bank and Dangote Sugar.

AIICO Insurance and Cutix were the best performing stocks, gaining 9.90% and 7.14% respectively at N1.11 and N1.80 per share on the back of their low price attractions and the impact of market forces. On the flip side, NNFM and Nigerian Breweries lost 9.67% and 7.05% respectively at N6.26 and N56.00 per share,also on profit-taking.

Market Outlook

We expect the mixed trend to continue in the midst of profit booking, portfolio rebalancing and repositioning in the new month, just as the market awaits inflow of funds from alternative investment and adjustment in CBN policies. So far, the NSE’s 30.60% year-to-date gain has outperformed the prevailing inflationary trend. This remains the stock market’s attraction, because it can be used to hedge against inflation, given the negative real rate of return from other investment windows.

Also important is the fact that technical indicators reveal overbought on the weekly and daily chart, while RSI reads 70 points and above, a situation that supports the likelihood of another correction.

However, the strong and faster recovery may continue, depending on market forces, going forward, as propelled by the quality of Q3 earnings presented, especially by the tier-1 banks, even as analyses of numbers released so far have helped repositioning of investors’ portfolios on the strength of sectoral and company’s performances.

The NSE’s index action and indicators are looking up in the same direction on a very high 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 rest of the year.

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