NGSE Indicators Close In Red, As Investors Adjust Portfolios, Position For Q3 Earnings

Market Update for October 7

The bullish of the Nigerian equity market took a hit at the midweek, when profit takers cashed out some of their gains from 12 successive sessions of rally driven by the increased liquidity inflow to the stock market in search of better return. This is just as more OMO, Treasury Bills and other fixed income instrument continue to mature, and since they can no longer be rolled over, these funds are being channeled into blue chip companies and high dividend paying stocks on the Nigerian Stock Exchange (NSE).

The money flow index remained strong at 96.17 points, just as the traded volume in recent times indicates that institutional investors, ranging from fund managers, Pension Fund Administrators, life insurance companies, and others, are piling up the equity market which is the only alternative investment outlet that is attractive. This is based on the prevailing high dividend yields with many companies having yields that are above 10% in less than eight months rather than reinvesting into the 364-day windows at less than 4%.

We advise investors not to panic arising from the midweek’s decline, but instead join in the profit taking spree, depending on investment objectives and strategies, while discerning investors should take the pullback to position as more funds are expected in the market ahead of the Q3 earnings season. This is because more OMO, Treasury Bills and other money market instruments will mature, resulting in an estimated N2.2tr in new money available to play the market in search of better returns.

Meanwhile, Wednesday’s trading opened on the upside, before pulling back owing to profit taking in medium and high cap stocks, which pulled the NSE All-Share index to an intraday low of 28,484.87 basis points. At the time, the market had broken out the 29,000 psychological level attaining a high of 29,171.29bps, before closing session lower at 28,634.35bps, on a negative breadth.

Midweek’s market technicals were mixed with higher volume traded than the previous session in the midst of negative breadth and high selling pressure, as revealed by Investdata’s Sentiment Report showing 78% ‘sell’ volume and 22% buy position.

Total transaction volume index stood at 2.64 points, just as the energy behind the day’s performance remained strong, with Money Flow Index reading 96.17 points, from the previous day’s 91.65 points, an indication that funds entered some stocks despite the down market and profit booking.

Index and Market Caps

Despite the high volatility seen during the midweek, trading for the session closed lower as the composite NSEASI shed 275.02bps, closing at 28,634.35bps, after opening at 28,909.37bps, representing 0.95% decline, while market capitalization lost N143,73bn, closing at N14.97tr, after opening at N15.11tr, which also represented 0.95% value loss.

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The day downturn resulted from selloffs in form of profit taking in stocks like Dangote Cement, MTNN, Guaranty Trust Bank, Zenith Bank, Unilever, UBA, Dangote Sugar, Guinness, United Capital, UACN and Mansard Insurance. This impacted negatively on the index, as Year-To-Date gains reduce to 6.68%, while market capitalization YTD gain slowed down to N1.91tr, or 15.11% above the year’s opening value.

Bearish Sector Indices

All the sectorial performance indexes closed in red, except for NSE Oil/Gas that gained a marginal 0.24%, while the NSE Banking led the decliners after losing 3.27%, followed by the NSE Insurance with 1.99% down; while the Industrial and Consumer goods dropped by 0.34% and 0.10% respectively.

Market breadth for the session turned negative as decliners outpaced advancers in the ratio of 31:21, while activity in volume and value rose by 11.13% and 0.49% respectively, as investors traded 832.88m shares worth N9.54bn, as against the previous 749.47m units valued at N9.5bn. Volume was boosted by trades in FBNH, Zenith Bank, UBA, Access Bank and Guaranty Trust Bank.

The best performing stocks of the session were Berger Paints and NASCON Allied, which chalked 9.84% and 9.59% respectively, closing at N6.70 and N12.00 each on positive market sentiments. On the flip side, Unilever and Zenith Bank lost 9.84% and 6.01% respectively, closing at N12.5 and N19.55 respectively on market forces and profit taking.

Market Outlook

We expect this volatility and buying interest to continue, even as profit taking hit the market amidst the positioning ahead of Q3 corporate earnings season, despite the negative macroeconomic indices. This is given the further crash in money market rates, while inflation peaked at 13.22%, worsening the negative returns on many investment windows.

The mixed intraday movement is likely to persist this October in the midst of an expected profit booking, as well as the mismatch in economic policies 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 the rest of 2020 as government and its economic managers are going front and back with mismatch polices and implementation.

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 Q3 earnings and dividend on the strength of their earnings capacity as the year last quarter is at the corner.

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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Ambrose Omordion

CRO|Investdata Consulting Ltd

Tel: 08028164085, 08032055467