Market Update for March 8
The nation’s equity market had yet another mixed and volatile session, but started the week on a positive note, halting the bearish transition of four straight trading days on seeming rekindled buying interests among the bellwether stocks and mispriced equities. This was shown by the ongoing revaluation in the market, due to changes in fundamentals, trading patterns and prices in the midst of earnings reporting season.
Earnings emanating from the companies have continued to give insights into what the investing public should expect from sectors, industries and companies judging by economic recovery as shown by the recently published mild Q4 GDP growth of 0.11%. This show that the Nigerian economy is in its early stage of economic expansion, following which some sectors and companies will naturally benefit as the economy rebounds.
Also important at this time is the ongoing recovery in crude oil price, as Brent now trades above $70 per barrel and farther above the government’s benchmark budget price, which means that public spending would receive a boost if it continues and even attain the projections, driving economic fundamental and recovery. It would also require a realignment of fiscal and monetary policies to make them complementary for the nation to achieve the desired objective.
On Monday, United Bank of Africa presented its full-year earnings report, with the directors proposing a dividend cut to 35 kobo, bringing total payout for 2020 to 52 kobo, down from N1.00 in 2019. We see this raising anxiety among investors for banking stocks that are yet to release their numbers. Although, we must note that when UBA cut its interim dividend payout to 17 kobo, other first tier banks maintained their payout. Let us therefore watch to see what will play out in the coming days and months.
The pause in market correction on Monday, after the benchmark index action had broken down the 40,000 basis points support level, a sign of volatility towards the next one, sported around 38,464.00bps. Should the index break this point, the next visible support is far down 34,396.3 points. .
Note, therefore, that technically, the ongoing negative move is best described as market correction, even as the consistent downtrend could be linked to the sharp rally recorded in 2020, ahead of the full year earnings season and Q1 numbers, coupled with favorable and positive economic indices. Market rebound can coexist with the uptrend in fixed income yields, following which we advise investors to play dividend stocks for reduced investment risk around the market.
Meanwhile, Monday’s trading started slightly on the upside and oscillated on demand for blue chip stocks and profit taking among the low priced equities. This situation pushed the NSE’s index to an intraday high of 39,412.27 basis points from its lows of 39,319.17bps, before closing above its opening point at 39,396.57bps on a low traded volume.
Market technicals were positive and mixed, with volume traded lower than previous day’s in the midst of breadth favoring the bulls on a high buying sentiment as revealed by Investdata’s Sentiments Report showing 83% ‘buy’ volume and 17% ‘sell’ position. Total transaction volume index stood at 0.66 points, just as the impetus behind the day’s performance remained weak, with Money Flow Index looking down slightly at 24.75pts, from the previous day’s 25.71pts, indicating funds left the market, despite the up market.
Index and Market Caps
At the end of Monday trading, the composite NSE All-Share Index gained 64.96bps, closing at 39,396.57bps after opening at 39,331.61bps, representing a 0.17% up. Similarly, market capitalization rose by N33.99bn, closing at N20.61tr, from previous day’s N20.58tr which also represented 0.17% value gain
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The session’s upturn was driven by buying interest in stocks like Ardova, Lafarge, FBNH, UBA, Oando, Access Bank, and Guaranty Trust Bank, among others. This impacted mildly on Year-To-Date loss which reduced to 2.17%, just as market capitalization loss stood at N444.28bn, or 2.11% below its opening value.
Mixed Sector Indices
Performance indexes across the sectors closed mixed, as NSE Insurance, Energy and industrial goods closed higher by 1.26%, 1.01% and 0.47% respectively, while the NSE consumer goods index led the decliners, after losing 0.06%, followed by Banking with 0.03%lower.
Market breadth turned positive, as advancers outpaced decliners in the ratio of 25:14; just as transaction in volume and value terms grew, with investors exchanging 257.27m shares worth N3.15bn. Volume was boosted by trades in Zenith Bank, FBNH, Mansard Insurance, Access Bank and United Capital.
Ardova and Linkage Assurance were the best performing stocks gaining 10% each, closing at N14.85 and N0.55 per share respectively on market forces. On the flip side, Meyer and Livestock Feeds lost 10% and 9.87%, closing at N0.45 and N2.01 per share, on profit taking and market forces
Market Outlook
We expect the mixed trend and momentum to continue in the face of rising Treasury Bills yields, oil prices and high dividend yields during this earnings season, as the pullbacks give bargain hunters another opportunity to reposition while more companies release their full-year numbers to support recovery. This is based on the fact that the rising fixed income yields may not be enough to scare all investors away from the equity market.
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.
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