NGSE Index Closes Lower, As Investors Remain Cautious
Market Update for September 9
It was a different trading session at midweek on the Nigerian Stock Exchange as more equities suffered losses to extend the key performance index negative outing for three consecutive sessions that sent panic among market players.
The midweek decline says more about whether we have entered the distribution phase of the market cycle or correction after recent rally in previous months or that the market has hit a critical resistance level for the major indexes. The increasing traded volume in the face of the seeming pullback remain a concern for the investors and traders, especially as selloffs in the banking stocks on the news that the CBN has debited banks that failed to meet up with the cash reserve ratio. Despite the dividend information which had supported the market uptrend before now, with corporate action dates for price adjustment slated for next week.
It’s obvious that the government is trying to explain away the poor economic and insecurity situation in the nation today by referring to the past administration. The huge national budget for the past five years before COVID 19 exposed ineffective policies of the government and its agencies as Nigeria economic plight amid the pandemic and national lockdown has been laid bane withits worst quarterly GDP drop on record. This economic contraction should prompt the government to do the needful and put an end to ‘business as usual and blame game’ by correcting this policies mismatch, lack of effective coordination among agencies, ministries, monetary and fiscal authorities, change the implementation style of its policies and promote transparency. Also, this is time to honestly review all the current policies that are running in order to rollout a workable economic recovery strategy intended to help the country rebound from this prevailing crisis.
Technically, the nation stock market has extended its weakness for third sessions, to break down the shortest 7 Day moving average and heading 20 DMA tosuggests that players should tread cautiously at this stage of correction to avoid falling in a bull trap, because technical tools have signaled short-term overbought region, that confirm distribution stage of price correction or pullbacks at this time. Is this really the BULL TRAP we have been warning about? We wait to see, as the week pullback extends at midweek, equity prices seem to have confirm new trend or direction.
Meanwhile, Wednesday’strading opened on the downside, and stained throughout the session on profit taking in medium and high cap stocks, which pushed the NSE index to an intraday low of 25,414.42bps, from its high of 25,496.73bps. Thereafter, it closed the day lower at 25,424.91bps on a negative market breadth.
Midweek market technicals were negative and mixed, as traded volume was higher than the previous session in the midst of negative breadth and sentiments, as revealed by Investdata’sSentiment Report showing 87% ‘sell’ volume and buy position of 13%. Total transaction volume index stood at 1.21points, just as energy behind the day’s performance remained relatively strong, with Money Flow Index reading 72.90points, from the previous day’s 79.80points, an indication that funds are leaving the market as profit booking continue.
Index and Market Caps
At the close of midweek trading, the composite NSEASI shed 72.41bps, closing at 25,424.91bps, having opened at 25,497.32bps, representing 0.28% drop, just as, market capitalization fell by N37.77 billion to N13.26 trillion, after opening at N13.30 trillion, also representing a 0.28% value loss.
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Midweek downturnwas as a result price depreciation of medium and high cap stocks like in Zenith Bank, Access Bank, UBA, UBN, UACN, C & I Leasing and others, which impacted negatively on the index, increasing Year-To-Date loss to 5.28%. Market capitalization YTD gain dropped to N305.43bn, representing 2.36% above the year’s opening value.
Bearish Sector Indices
The sectorial performance indexes were bullish, except for the NSE Industrial goods that closed slightly up by 0.05%, while the NSE Banking index led the decliners after losing 1.54%, followed by Insurance, consumer goods and Oil/Gas that were down by 0.39%, 0.19% and 0.11% respectively.
Market breadth was negative as decliners outnumbered advancers in the ratio of 23:7, as market activities in term of volume and value were up with by 7.01% and 40.48% respectively, as investors exchanged 269.63 million shares worth N2.87 billion against the previous day 251.96 million units valued at N2.04 billion. This was driven by trades in Zenith Bank, FBNH, UBA, Guaranty Trust Bank and Access Bank.
Fidson Healthcare and PZ were the best performing stocks for the session, aftergaining 7.28% and 6.25% respectively to close at N3.98 and N4.25per share on market forces and low price attraction. On the flip side, Royal Exchange Assurance and Livestock Feeds lost 10% and 9.1% respectively, closing at N0.27 and N0.60 respectively on market forces and profit taking.
We expect a mixed trend on profit taking ahead of qualification and markdown dates of dividend paying banks as investors reposition their portfolios, looking forward to market corrections ahead of the Q3 earnings season. Recall that banks have kept the market above its 50-day moving average on a daily time frame.
The mixed intraday movement is likely to persist as the month of September progresses in the midst of profit booking and negative macroeconomic indices. This is also against the backdrop of the fact that the capital wave in the financial market may persist in the midst of relatively low-interest rates in the money market, high inflation, negative Q2 GDP of 6.1% and unstable economic outlook for 2020 as government and its economic managers are going front and back with mismatch polices and action.
Also, investors and traders are positioning amidst the changing sentiments in the hope of improved liquidity and positive economic indices which may reverse the current trend.
We see investors focusing on portfolio adjustment and rebalancing by targeting companies with strong potentials to grow their dividend on the strength of their earnings capacity.
Again, the current undervalue 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 for the rest of the year.
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