Market Update for December 14
The week’s transactions on the Nigerian Stock Exchange (NSE) started Monday on a positive note as buying interests rekindled among high cap stocks to reverse losses of the previous session on positive sentiments and low traded volume.
Market recovery is looking up and signaling an uptrend in the midst of increasing positive factors, considering the rising oil prices at the international markets and distribution of the Coronavirus vaccines kickoffs in the U.S.
It does appear that there is a combination of sector and earnings performance rotation, changing style bias Value vs Growth in the market, despite the selling pressure witnessed in previous sessions.
Meanwhile, December, especially from mid-month to the New Year has s positive seasonal trend or bias suggesting that anything is still possible, considering the impact of the vaccines and rising oil price on the global and domestic economies.
We equally expect a positive outlook with the Central Bank of Nigeria (CBN) issuing N4.1tr worth of 91-day special Treasury Bills at just 0.5% to banks as a refund of the excess Cash Reserve Requirement (CRR). This increases liquidity in the banking s system, providing direction to the secondary market, which is perhaps anticipating a higher rate on the special bills.
Market expectations can be inferred from the 3.2% discount rate on 364-day at the Primary Market Auction last week Wednesday, compared to 0.15% at the previous auction, while the short end of the Treasury Yield curve will rise slightly to reflect the new levels set by the special bill (compared to primary market auction rate of 0.01% for 90-day bill).
The long end of the Treasury Yield curve is expected to moderate back to 1%, as banks and fund managers buyback long dates bills to cover positions, offering a slight upside to banks profitability, considering that the funds were hitherto earnings zero interests.
More so, it reinforced the low yield environment and settles earlier concerns that the issuance of the bills will lead to a spike in the yield curve, resulting in a reallocation of funds away from equities to fixed income instruments.
Monday’s equities’ trading opened slightly on the upside, and was sustained throughout the day as the market oscillated on renewed buying interests in industrial goods and telecoms stocks. These pushed the composite NSE All-Share index to an intraday high of 34,877.29 basis points, from its low of 34,206.486bps, before closing above its opening level at 34, 843.44bps on a positive breadth.
Market technicals were positive and mixed, with volume traded lower than the previous day in the midst of breadth that favoured bulls on a high buying pressure as revealed by Investdata’s Sentiments Report showing 95% ‘buy’ volume and 5% ‘sell’ position. Total transaction volume index stood at 0.42 points, just as the impetus for the day’s performance was relatively weak with the Money flow index dropping further to 42.59pts, from the previous day’s 44.28pts, an indication that funds left the market, despite closing on a positive note.
Index and Market Caps
The benchmark index, at the close of Monday’s trading gained 592.70 basis points, representing a 1.73% rebound, from its 34,250.74bps opening, just as market capitalization rose by N309.78bn to N18.21tr, from N17.9tr, also representing 1.73% value gain.
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Monday’s uptrend resulted from repositioning in high cap stocks and blue chip companies like Airtel Africa, Dangote Cement, Lafarge Africa, GSK, United Capital, Vitafoam, Dangote Sugar, Guinness Nigeria, and Fidelity Bank, among others. These impacted positively on Year-To-Date gains which increased to 29.81%, just as YTD gain in market capitalization grew to N5.34tr, representing a 41.06% growth above the opening value.
Mixed Sector Indices
The performance indexes across sectors were mixed, as th NSEConsumer Goods, Oil/Gas and Banking closed 0.93%, 0.66% and 0.33% lower respectively, while the NSE Industrial Goods led the advancers after gaining 1.91%, followed by NSE Insurance that closed higher by 1.29% and 0.68% respectively.
Market breadth turned positive as advancers outnumbered in the ratio of 26:14, even as activities in volume and value terms dropped by 73.85% and 17.13% respectively while investors traded 208.09m shares worth N3.7bn, compared to the previous day’s 796.06m units valued at N4.46bn. Volume was driven by Zenith Bank, Guaranty Trust Bank, Zenith Bank, Access Bank, Regency Insurance and Mutual Benefit Assurance.
Airtel Africa, and Royal Exchange Assurance were the best performing stocks, gaining 10% and 9.52% respectively at N704 and N0.23 per share, with investors repositioning in defensive stocks, as well as the impact of market forces. On the flip side, Prestige Assurance and International Breweries gave up 10% and 9.89% of their value, closing at N0.45 and N per share, also on market forces and panic selling.
We expect the rebound to continue as players interpret the impact of funds rotation and the current dividend yields provided by the pullbacks as bargain hunters take advantage of the situation to reposition. Investors should at this point target solid companies selling at discount in the midst of the ongoing cautious trading, portfolio diversification and profit taking, ahead of economic data and seasonal trends. We note that the market awaits the circular flow of funds to settle in higher yields instruments with a shorter time frame, while waiting to see the impact of the adjustment in CBN policies. Behind this correction lies buy opportunities for discerning traders and investors.
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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