NGSE Index Climbs Higher On Positioning, Year-end Window Dressing

Market Update for December 29

Equity prices on the Nigerian Stock Exchange (NSE) climbed higher when trading closed on Tuesday after the Christmas holidays declared by the Federal Government on Friday and Monday, erasing the marginal loss of the previous session on a very high traded volume, amidst positive sentiments. Low priced stocks led price gains, just as more banking stocks joined the ongoing Santa Claus rally ahead of quarter and year-end window dressing activities, especially by institutional investors.

Despite, the mixed and volatile session, the benchmark NSE All-Share index (NSEASI) made a new 52-weekhigh, breaking out the 39,000 psychological line on buying interests in industrial, banking and consumer goods stocks. This supported the index regardless of the seeming profit taking in stocks that rallied recently in the insurance, oil/gas and other sectors.

As mentioned in our previous update, market reversal and uptrend are possible in the face of the 2020 year-end expectations and window dressing in these last few trading sessions, given that the two major factors of low interest rates and rising oil price that drive bull market are intact.

Money flow index on the daily chart read 70.58 points to reveal the activities of smart money as more funds enter the equity space in search of higher dividend yields as investors expect the corporate earnings reporting season to kick off in February 2021 for December year-end accounts. September year-end results from John Holt and Neimeth Pharmaceuticals are in the market already.

However, we must warn at this point, that investors should not underestimate the possibility of price correction any time soon, because profit-taking is inevitable, even while the market has a trading pattern that supports an uptrend.

The summary is: anything is still possible, considering the prevailing trading pattern as the index rallies outside the upper limit of the Bollinger band. 

Meanwhile, Tuesday’s session opened on the upside and was maintained throughout the session despite oscillating on profit and position taking, a situation that pushed the composite index to an intraday high of 39,134.37 basis points, from a low of 38,775.26bps, before closing higher at 39,110.17bps on a negative breadth.

Market technicals for the session were positive and strong with volume traded higher than the previous day’s in the midst of flat breadth and high buying pressure as revealed by Investdata’s Sentiments Report showing 93% ‘buy’ volume and sell position of 7%. Total transaction volume index stood at 1.57 points, just as the momentum behind the day’s performance was relatively strong, with Money flow index looking up at 70.58pts, from the previous day’s 68.24pts, an indication that funds entered the market in search of higher returns and yields ahead of 2021 corporate actions.

Index and Market Caps

The NSEASI, at the end of day trading gained 310.16bps, after opening at 38,800.01bps representing a 0.80% growth, just as market capitalization rose by N167.64bn to N20.45tr, also representing 0.80% appreciation in value.

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Tuesday’s upturn was driven by position taking in high and medium cap stocks like BUA Cement, Zenith Bank, Access Bank, UBA, NEM, Honeywell, and Jaiz Bank, among others. This impacted positively on Year-To-Date gains, which increased to 45.70%, just as YTD gain in market capitalization soared to N7.49tr, representing a 51.83% growth.

Mixed Sector Indices

Performance indexes across sectors were largely bullish, except for the NSE Insurance and Oil/Gas that closed 0.81% and 0.06% lower, while NSE Industrial Goods led the advancers after gaining 2.39%, followed by the Banking and Consumer Goods that closed 1.05% and 0.43% higher respectively.

Market breadth was negative, as decliners outnumbered advancers in the ratio of 20:19; activities in volume and value terms were mixed with transaction volume rose by 85.40% as investors exchanged 722.57m shares from the previous day’s 389.73m units. The day’s transaction value fell by 45.04% to N4.38bn from Thursday’s N7.97bn, while volume was driven by Aiico, Oando, FBNH, Access Bank and Champion Breweries.

Jaiz Bank and NEM Insurance were the best performing stocks gaining 10% and 9.68% respectively, to close at N0.66 and N1.49 per share, on impressive earnings and low attraction. On the flip side, NCR and FTN Cocoa lost 9.68% and 8.99% respectively, at N1.96 and N0.81 per share, on market forces and profit taking.

Market Outlook

We expect the trend to continue as buying interests in highly capitalized stocks that control 70% of the market cap pushed the NSE to rank the best performing market in the world, as oil price rally and more stocks that drive the Santa Claus rally are waking up in terms of price appreciation ahead of year end window dressing. There was also the interplay of market forces, as traders and investors interpret the impact of funds rotation and the current happens globally. Investors should, at this point, target solid stocks selling at discount in the midst of the ongoing cautious trading, portfolio diversification ahead of seasonal trends and expectations.

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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Ambrose Omordion

CRO|Investdata Consulting Ltd





Tel: 08028164085, 08032055467

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