NGSE Index Soars On MPC Meeting Outcome, Bargain Hunting, Positioning

Market Update for January 26

Trading activities on the Nigerian Stock Exchange on Tuesday was very volatile still, but bullish, closing higher on increased buying interests, heightening the gaining momentum, even on a low traded volume and amidst a positive breadth.

The bull-run was thereby extended for the second consecutive session as members of the Central Bank of Nigeria’s Monetary Policy Committee voted unanimously to retain the monetary policy stance at the end of their two-day meeting. Specifically, the members voted, in line with popular analysts expectations, to retain the benchmark Monetary Policy Rate (MPR) at 11.5% , among others, ahead of the month end window dressing by equity investors looking forward to the earnings season’s kick-off in February for early filers.

Already, Unilever has made available its full-year earnings reports to the market, just as Okomu Oil and Flour Mills have rebased their unaudited full-year and Q3 numbers respectively.

The benchmark NSE All-Share index hit an intraday and 52 weeks high during Tuesday’s session, as market volatility lingered following the renewed buying interests after last week’s profit booking ahead of the just concluded MPC meeting.

However, the outcome of the MPC meeting and positive sentiments, inspired bargain hunting as players repositioned their portfolios for month-end, ahead of the 2020 full-year earnings reporting season, helped the composite index to breakout the 41,203.20bps strong resistance level and the side-trending to extend market’s recovery move on a new trend.

Our advice is that traders to take advantage of the breakout to position in dividend-paying stocks, with numbers likely to beat expectation, given that the NSEASI’s index action and money flow index are looking up.

Meanwhile, Tuesday’s trading opened on the upside and was sustained throughout on position taking that pushed the All-Share index to an intraday high of 41,589.56 basis points, from its 41,087.40bps lows, before closing the session above its opening figure at 41,584.94bps on a low traded volume.

Market technicals were positive and strong, with higher volume traded than previous day’s in the midst of positive breadth and high buying pressure as revealed by Investdata’s Sentiments Report showing 99% ‘buy.’ With a total transaction volume index of 0.86 points, the momentum behind the day’s performance remained relatively strong as the Money flow index read 50.04pts, from the previous day’s 45.97pts, indicating that new funds entered the market.

Index and Market Caps

At the end of trading, the key performance index gained 495.98 basis points, closing at 41,584.94bps after opening at 41,088.96bps representing a 1.21% growth. Similarly, market capitalization rose by N259.46bn, closing at N21.75tr, from its opening value of N21.45tr, representing a 1.21% appreciation in value.

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Tuesday’s uptrend was driven by accumulation in stocks like MTNN, Airtel Africa, Flour Mills, UBA, Lafarge Africa, Guaranty Trust Bank, and Unilever, among others, raising Year-To-Date gain mildly to 3.21%, just as YTD gain in market capitalization stood at N742.50bn, or 3.78%.

Mixed Sector Indices

Performance indexes across the sectors were mixed, with the NSE Energy and Banking closing 5.31% and 0.14% lower respectively, while Consumer Goods led the advancers after gaining 0.54%, followed by Insurance and Industrial Goods with 0.40% and 0.58% respectively up.

Advancers outweighed decliners in the ratio of 32:19; just as activities in volume and value terms were up by 40.47% and 110.79% respectively, after traders exchanged 467.89m shares worth N5.57bn, compared to the previous 333.1m units valued at N2.64bn. The day’s volume was boosted by activities in Transcorp, AXA Mansard Insurance, Japaul Gold, Sovereign Trust Insurance and Lasaco.

The best performing stocks were RT Brisco and Champion Breweries which garnered 10% and 9.81% respectively, closing at N0.22 and N2.35 per share, on market sentiment and forces. On the flip side, John Holts and Japaul Gold lost 10% and 9.30%, closing at N0.45 and N0.78 per share, on market forces and profit taking.

Market Outlook

We expect the mixed performance, sentiment and profits taking to linger, as the NSEASI broke out its strong resistance level of 41,203bps on a new trend from the recent ranging mood, ushering in an uptrend as buying interests in mispriced companies and dividend-paying stocks persist, ahead of the market’s major earnings reporting season. This is especially as the low interest rates regime and oil price have so far supported the Nigerian economy and equity market. There is also the likelihood of a reversal in trend and continuation, as investors position in high yields stocks in the New Year. Also, important is the fact that technical indicators reveal overbought on the weekly and daily chart, while the 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 expected 2020 full earnings reports, while all eyes are on the outcome of next week’s MPC meeting and its outcome to give the market direction.

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