NGSE Investors Cream 34.3% YTD On Bull-Trend, But Profit-taking Ahead

Market Update for December 17

It was yet another impressive and bullish session at the Nigerian Stock Exchange (NSE) on Thursday, when the composite All-Share index extended it bull transition for the fourth straight day, closing on a positive note, as players increased their buying interest across all sectors possibly on the back of news that the Federal Government is reopening Nigeria’s borders after 15 months of closure.

There was also the factor of oil price at the international market hitting $51 per barrel, the highest since March, added to the government’s plans to import Covid 19 vaccines by January, amidst the rising new cases of infection. To avoid the second round of lockdown in an economy that is in recession already, the government and it economic managers need to double their efforts in containing the spread, while revisiting more policies that could be hurting the economy. 

On Thursday, the NSEASI broke out the 36,000 psychological line on positive sentiments, driven by price appreciations in high cap stocks like Airtel Africa, and Dangote Cement, among others, thereby ushering in the Santa Claus rally, a trend associated with December trading activities and sentiments. This confirmed a new uptrend as more stocks enter the bullish region to reveal the presence of smart money in the market.

Investors should target value and growth stocks and ride with the trend, as this also suggests that smart investors ensure that the 10 golden stocks for 2021 are in their portfolios, because these are companies expected to drive the NSE’s ongoing V-shaped market recovery. The benchmark index just broke out major resistance levels to trade above all the moving averages on a daily and weekly chart.

Investors also should not underestimate correction at any time, because profit-taking is inevitable, even while the market has a trading pattern that supports an uptrend, especially from mid-month to the New Year, due to a positive seasonal trend or bias. The summary is: anything is still possible, considering the impact of the Coronavirus vaccines and oscillating oil prices on the global and domestic economies. 

Thursday’s trading started in the upside on high buying pressure that was sustained for the rest of the session, as investors repositioned for year-end and corporate actions in 2021, factors that pushed the benchmark index to an intraday high of 36,239.62 basis points from its low of 35,493.15bps. Thereafter, the index closed higher than it opened on less than average traded volume.

The session’s technicals were positive, but mixed, with volume traded lower than the previous day in the midst of positive breadth and high buying pressure as revealed by Investdata’s Sentiments Report showing 100% ‘buy’ volume. Total transaction volume index stood at 0.58 points, just as the impetus behind the day’s performance was relatively weak, with Money flow index looking up at 46.83pts, from the previous day’s 45.17pts, an indication that funds entered the market as funds are looking for higher returns and yields.

Index and Market Caps

At the close of the trading, the NSEASI gained 746.47 basis points, representing a 2.10% rise, from its opening number of 35,225.22bps, just as market capitalization jumped N390.18bn up to N18.94tr, from N18.55tr, also representing 2.10% appreciation in investors’ portfolios.

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Thursday upturn was driven by gain by Dangote Cement, Airtel Africa, Okomu Oil, Unilever NIgeria, Zenith Bank, Access Bank, Ardova and others. These impacted positively on Year-To-Date gains which increased to 34.30%, just as YTD gain in market capitalization grew to N6.03tr, representing a 45.13% growth above the opening value.

Bullish Sector Indices

Performance indexes across sectors were bullish, with the NSE Insurance taking the lead, after chalking 2.36%, followed by Industrial Goods’ 1.28%; while Banking, Oil/Gas and Consumers Goods grew by 1.11%, 0.62% and 0.23% respectively.

Market breadth remained positive as advancers outnumbered decliners in the ratio of 30:17; transactions in volume and value terms were mixed with volume declining by 47.18% to 343.6m shares, from previous day’s 650.55m units, while value rose by 89.52% to N4.34bn, when compared to previous day’s N2.28bn. Volume was driven by FBNH, Skyways Aviation, UBA, Access Bank and, Zenith Bank.

Airtel Africa and Ardova were the best performing stocks during the session, gaining 10% each to close at N774.40 and N13.25 per share, on market trend and low price attraction. On the flip side, Omatek and Coronation Insurance lost 9.1% each, at N0.30 and N0.40 per share, on market forces and profit taking

Market Outlook

We expect this trend to continue depending on the interplay of market forces, as traders and investors interpret the impact of funds rotation and the current dividend yields provided by the pullbacks, while bargain hunters take advantage of the situation to reposition. Investors should, at this point, target solid stocks selling at discount in the midst of the ongoing cautious trading, portfolio diversification ahead of seasonal trends and expectations. A breakout of 36,000 points will confirm a new uptrend as the market awaits the circular flow of funds to settle in higher yields instruments with a shorter timeframe, while waiting to see the impact of the adjustment in CBN policies. A breakout of this resistance level will create 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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Ambrose Omordion

CRO|Investdata Consulting Ltd

Tel: 08028164085, 08032055467