Equities

NGSE Index Goes South Again, Ignores Earnings Reports, Awaits Major Economic Trigger

Market Update for March 2

The downward oscillating trend continued on the Nigerian Stock Exchange (NSE) on Tuesday as price corrections and pullbacks persist, exposing the level of risk associated with trade at this point that Treasury Bills’ yield is making that segment of the financial markets compete for scarce funds with equity assets despite the ongoing earnings season.

Note that the market has not reacted yet to the relatively impressive corporate numbers and payouts announced by companies listed on the NSE, a situation that seemingly suggest funds are not entering the market at this moment. Such changing pattern in trades require that players should review their investment objectives, as well as their ‘buy’ and ‘sell’ strategies to protect capital, while also reviewing sector rotations to take advantage of these pullbacks for repositioning this year.

We note that the composite All-Share index’s action has broken down the 40,000-support level, it is now moving towards the next one sported around 38,700.00bps, and should the index break this point, its next visible support is far down 34,396.30 point.

Technically, therefore, the ongoing negative move is best described as market correction, and the consistent downtrend could be linked to the consistency with which it gained during the bull-run that lingered until January.

Also, bear in mind that the full-year earnings season may not be strong enough to end the correction, except it is supported by favourable and positive economic indices, which the positive news of Nigeria exiting recession may be a part of, if the recovery or growth is sustained and the nation’s security challenges addressed by government as quickly as possible. We are also seeing pointers already to a further spike in inflation rate, given the blockade of farm produce from the north to southern Nigeria, leading to destruction of such perishable items on one side, and the huge impact of artificial scarcity on the opposite side. A segment of farmers in the north have estimated their loss alone, from the incidence at over N10bn, an amount that could significantly increase when the impact down the value-chain, including revenue loss on both sides is considered.

In the midst of all of these, Investdata is of the opinion that playing dividend stocks on the NSE will reduce investment risks around the market at this stage.

In that way, should the full-year earnings reports and dividend news fail to impact and support the current trend, a big rotation in sector trends would also guide you, going into the future. This is especially given that the NSE’s All-Share index action is trading below its 50-Day Moving Average on a daily time frame, which suggests that all is not well with the market at this point.

Tuesday’s trading started on the downside and was sustained throughout the day, despite the seeming oscillation on selloffs and buying interests in dividend stocks that had announced their payout. This situation pushed the NSE’s index to an intraday low of 39,668.22 basis points from its 39,939.18bps high, before closing below its opening point at 39,697.62bps on a low traded volume.

The day’s market technicals were negative and weak, with volume traded lower than previous day’s in the midst of breadth favoring the bears and negative sentiment as revealed by Investdata’s Sentiments Report showing 11% ‘buy’ volume and 89% ‘sell’ position. Total transaction volume index stood at 0.46 points, just as the impetus behind the day’s performance remained weak, with Money Flow Index looking up slightly at 26.62pts, from the previous day’s 25.95pts, indicating funds entered the market, despite the selloffs.

Index and Market Caps

The benchmark Index, at the end of Tuesday’s trading shed 234.07bps, after opening at 39,931,63bps, closing at 39,697.67points which represented a 0.59% decline. Similarly, market capitalization lost N122.43bn, closing at N20.77tr from previous day’s N20.89tr which also represented 0.59% depreciation in value. 

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Tuesday’s downturn was driven byselloffs and profit taking in high and medium cap stocks like Nestle Nigeria, Lafarge Africa, Flour Mills, Unilever Nigeria, Ardova, UACN, Access Bank, and Zenith Bank, among others. This impacted negatively on Year-To-Date loss which increased to 1.42%, just as the drop in market capitalization stood at N286.77bn, or 1.36% below its opening value.

Bearish Sector Indices

Performance indexes across various sectors closed negative, except for the NSE Insurance that closed 0.21% higher, while the NSE Consumer Goods index led the decliners, after losing 3.86%, followed by Energy, Industrial Goods and Banking with 0.88%, 0.41% and 0.12% respectively lower.

Market breadth remained negative, as decliners outpaced advancers in the ratio of 25:17; just as transactions in volume and value terms were mixed, with volume traded dropping by 59.09% as stockbrokers traded 222.57 m shares, down from the previous day’s 543.99m units. Transaction value however rose by 185.19% at N5.39bn, when compared to Monday’s N1.89bn. Volume was boosted by trades in Zenith Bank, United Capital, Mutual Benefits Assurance, Japaul Gold and Mansard Insurance.

The best performing stocks of the session were Academy Press and PZ Cussons, as they gained 9.76% and 9.38%, closing at N0.45 and N5.25 per share respectively, on market forces and their low-price attraction. On the flip side, Mutual Benefits Assurance and Ardova lost 10% and 9.97%, closing at N0.36 and N16.25 per share, on profit taking and market forces

Market Outlook

We expect the mixed trend and momentum to continue, allowing bargain hunters take advantage of pullbacks to position as more companies release their full-year numbers to support the ongoing recovery in the midst of the rising fixed income yields. Consequently, there is the improvement in dividend yields occasioned by price corrections that had created entry opportunities for discerning investors ahead of earnings expectations. We expect that this will attract more funds to the market in the short-term, as Nigeria’s industrial output improved, according to a report by FBNQuest, the merchant banking arm of the FBN Holdings group which showed that February Purchasing Managers’ Index stood at 53.00 points, up from 44.5 points in January 2021. This is a good new for the market and economy at large.

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 expected 2020 full earnings reports, until the next MPC meeting in March.

The NSE’s index action and indicators are in divergence on a low traded volume and positive buying sentiments.

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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