Market Update for February 27
After weeks of continued bear-run on the Nigerian Stock Exchange (NSE), the gains accumulated at the beginning of the year has been finally wiped out, as market year to date turn performance turned negative due to sell pressure, following adjustments of the Cash Reserve Requirement by Central Bank of Nigeria (CBN). There were also negative reactions to the 2019 unaudited full-year results, just as the audited financials released so far in this month of February, the accompanying dividend news, such that despite the high payout from these companies, share prices continue to go south. Analysts however agree that the continued slide reflects the lack of liquidity in the market, as well as buying interests in the equity space, irrespective of the compelling value and high yields on offer.
The mixed global economic outlook and the ravaging Coronavirus, has triggered panic selloffs in advanced and emerging markets, as funds flow into bonds and commodities for the safety of their capital, amidst fears that the outbreak could hit the operations of some big companies and earnings performance.
As noted in our report for Wednesday, the importance of liquidity in equity market cannot be overemphasized, which is one reason Investdata has repeatedly canvassed at every opportunity- through our write-ups, seminar, and presentations, that 80% movement in share price is a function of market liquidity, sectorial performance, and perception, while company performance or news influence the remaining 20%.
With the federal government suspending its plans to borrow N2tr from the nation’s pension market, according to finance minister (READ MORE), as well as early disbursement and implementation of the 2020 budget, especially capital projects and the expected NSE demutualization to activate dead capital, all of which will likely push funds to the stock market. The market needs liquidity to play its role in driving economic development and growth.
Thursday’s trading started on the upside slightly but pulled back by midmorning, oscillating for the rest of the trading session on mixed sentiments and selloffs that dragged the NSE index to intraday low of 26,796.43 basis points, from its high of 26,977.40bps. Thereafter, it inched up slightly to close the day at 26,808.24bps on a low traded volume.
Market technicals for the session were negative and mixed, with volume traded slightly higher than the previous session in the midst of negative breadth and sentiment as revealed by Investdata’s Sentiment Report showing 93% ‘sell’ volume and 7% ‘buy’ position. The total transaction volume index stood at 0.84, but the momentum behind the day’s performance was absolutely weak, as Money Flow Index reads 4.15points, from the previous day 4.27points, an indication that the market is lacking in liquidity.
Index and Market Caps
At the close of Thursday’s trading, the NSE All-Share Index lost 166.14bps, closing at 26,808.24bps from its 26,974.38bps opening, representing a 0.62% decline, just as market capitalization dropped by N86.55bn, closing at N13.97tr, from the N14.05tr opening level, which also represented a 0.62% depreciation in value.
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The downturn was impacted by selloffs in high cap stocks like Guaranty Trust Bank, Zenith Bank, NB, Access Bank, UBA, FBNH, ETI, Stanbic IBTC, Fidelity Bank, Flour Mills and Honeywell Flour. This expectedly impacted negatively on the NSE, as the Year-To-Date position turned red at 0.13%, while market capitalization YTD gain dropped to N1.01tr, representing 7.78% growth over the year’s opening value.
Bearish Sector Indices
The sectorial performance indexes were largely bearish, except for NSE Insurance that closed 1.12% up, while the NSE Banking index led the decliners, after shedding 4.73%, followed by the NSE Consumer Goods and Oil/Gas which slipped by 4.18% and 1.33% respectively, while Industrial Goods index was flat.
Market breadth was negative, with decliners outnumbering advancers in the ratio of 20:13, while market transactions in terms of volume and value traded were inched by 1.38% and 63.50% respectively as investors traded 231.53m shares worth N4.48bn, from the previous day’s 228.38m units valued at N2.74bn. This volume was driven by trades in Zenith Bank, NB, GTBank, UBA and FBNH.
Jaiz Bank and Law Union Insurance were the best-performing stocks during the day, after gaining 9.43% and 7.95% respectively, closing at N0.58 and N0.95 per share on market forces and dividend expectations. On the flip side, Flour Mills and Consolidated Hallmark Insurance lost 8.70% and 6.90% respectively, closing at N21.00 and N0.27on profit taking and market forces
We expect the losing momentum to moderate on dividend news and resist further decline as more audited earnings hit the market in March. This is despite the likely continuation of the mixed intraday movement in the midst of profit-taking, with investors buying increasing positions in high dividend-paying stocks ahead of dividend declaration. 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 and unstable economic outlook for 2020.
Also, investors and traders are positioning in anticipation of the 2019 full-year earnings reports, 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 the upcoming full-year earnings season, targeting companies with strong potential to grow their dividend on the strength of their earnings capacity.
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 New Year.
This was noted in the 10 golden stocks and trading ideas for 2020, as discussed extensively during the Investdata 2020 Traders & Investors Summit held in Lagos.
Also, traders and investors need to change their strategies, because of the NSE’s pricing methodology, the CBN directives and their impact on the economy in the nearest future.
Meanwhile, the Investdata team welcomes you to a bullish 2020. The home study packs of our Invest 2020 Opportunities and Trade Ideas Summit, containing the 10 Golden Stocks for 2020 are available. To obtain your pack send ‘Yes’ or ‘Stock’ to 08028164085, 08032055467, 08111811223 now.
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Tel: 08028164085, 08032055467