NGSE May Sustain Faster Recovery, Depending On Market Forces, Q3 Earnings Quality

Market Update for November 26

Thursday’s trading on the Nigerian Stock Exchange (NSE) was mixed and volatile, as the All-Share index closed slightly higher on a sustained mixed sentiments and low traded volume that signaled caution, given that the NSE action recently formed double tops that support either a pullback or breakout. This might be useful for chart readers or watchers to review some predications based on recent price actions.

It is true that the bull sentiment is still in the market, especially with more maturing money market funds likely to enter the equity market due to the continued crash in Treasury Bill rates and low yields in fixed income.

With the just concluded Q3 earnings season, companies with December year-end should be the major investment attractions at the moment, depending on the sectorial, company performances and prospects.

We also believed that earnings capacity of these companies and dividend history, in addition to movements in economic indicators/policies will sharply dictate market direction, going forward, with the end of Q3 earnings season. The next major earnings season is expected to commence within the first quarter of next year with early filers as funds search for better returns and yields, considering the prevailing inflationary environment.

Meanwhile, Thursday’s trading started on the upside into the midday before oscillating for the rest of the session on repositioning and profit taking in banking and blue-chip stocks. This pushed the NSE’s index to intraday high of 34,882.52 basis points, from its low of 34,768.73bps, and thereafter closed marginally above it opened figure at 34,803.00bps.

Market technicals for the session were positive and mixed with lower volume traded than the previous day in the midst of flat breadth and mixed sentiment, as revealed by Investdata’s Sentiment Report showing 70% ‘sell’ volume and 30% buy position. Total transaction volume index stood at 0.51 points, just as impetus behind the day’s performance was strong but looking down as Money Flow Index reading 72.90 from the previous day position of 73.45 points. This is an indication that funds left the market, reflecting the impact of profit taking, notwithstanding that the index closed higher.

Index and Market Caps

At the close of Thursday’s trading, the benchmark NSEASI inched up by 34.00bps, closing at 34,803.00bps, representing a 0.10% up, after opening at 34,765.00bps; just as market capitalization rose by N17.77bn to N18.18tr, after opening at N18.17tr, which also represented 0.10% value gain.

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Thursday’s upturn was driven by buying interests in Guaranty Trust Bank, 11 Plc, International Breweries, Cadbury, Guinness, AIICO Insurance, Fidson Healthcare, and Vitafoam, among others. This impacted positively on Year-To-Date gain which increased to 29.66%, while Market capitalization YTD stood at N5.23tr, representing a 40.33% growth above the year’s opening value.

Bullish Sector Indices

Performance indexes across sectors were largely bullish, except for the NSE Industrial goods that closed 0.03% down, while the NSE Oil/Gas led the advancers’ after gaining 2.77%, followed by the NSE Insurance, consumer goods and banking thatclosed 0.97%, 0.61% and 0.02% higher respectively.

Market breadth was flat as advancers equaled to ecliners, in the ratio of 21:21, while activity in volume and value terms were down by 40.78% and 48.94% respectively, with investors exchanging 257.56m shares worth N3.53bn, down from previous day’s 434.92m units valued at N6.91bn. Volume was driven by trades in Zenith Bank, Transcorp, Access Bank, UBA and  Sterling Bank.

NCR and 11 Plc were the best performing stocks, gaining 10% and 9.99% respectively, at N1.98 and N208.80 per share on the back of market trends forces. On the flip side, Royal Exchange Assurance and Union Diagnostic lost 7.69% and 7.41% respectively, closing at N0.24 and N0.25 per share, on market forces.

Market Outlook

We expect the market to maintain the uptrend on the continued crash in money market rates and low yields in the fixed income market, as the NSE’s year-to-date soared above inflation rate at 29.66%. This is the attraction in the stock market, as a leading indicator that can be used to hedge against inflation given the continued negative real rate of return from other investment windows.

Also important is the fact that technical indicators reveal overbought on a weekly and daily chart, while RSI read 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 sector 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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