NGSE May Sustain Rebound, As Investors Review Impact Of Recent Economic Data, News
Market Update for December 15
Equity prices on the Nigerian Stock Exchange (NSE) closed higher on Tuesday, maintaining a positive outlook for the second consecutive trading session, due to increased bargain hunting and positioning ahead of year-end window dressing and expectations on the 2021 corporation actions for early filers.
The bullish stance across the sectorial indexes also supports the rekindled buying interests and positive momentum as the market ignored the new rates in the money market and the spike in the consumer price index for the month of November, showing that the year-on-year inflation rate hit its highest since August 2019 at 14.89%, from 14.23% in October.
Although, the inflationary trend remains a source of serious concern to the economy, consumers and investors, it favours the stock market which at 31.23% YTD returns, remains the only investment window that outperforms inflation as of close of trading on Tuesday.
The latest 0.66point increase in inflation rate is driven by a myriad of issues, including the continued closure of Nigeria’s land borders and hike in pump price of fuel, and electricity tariffs, which are made worse by the heightening insecurity across the county that had driven farmers out of their farms.
With the expectation of seasonal trends underway, the benchmark NSE All-Share index action recently broke out the 20-Day Moving Average that served as the first resistance level, forming another double top, as the market comes to a cross road of either a breakout or pullback, which has made this level a critical point for traders and investors to watch out for. Chart readers are seriously watching, as it appears that there is a combination of sectoral and earnings performance rotations, while investors go for value and growth stocks, despite the mixed outlook for the rest of the month.
Meanwhile, December, especially from mid-month to the New Year has a positive seasonal trend or bias, suggesting that anything is still possible considering the impact of the vaccines and oscillating oil prices on the global and domestic economies.
Meanwhile, Tuesday’s trading started on the upside, and was sustained throughout the session, despite last minute oscillation on the back of unrelenting buying interests across sectors and undervalued stocks with good dividend history.
These, expectedly, pushed the NSE’s index to an intraday high of 35,227.32 basis points as it broke out the 35,000 level psychological line, from its low of 34,834.786bps, before closing above its opening level at 35, 225.22bps on a low traded volume.
The session’s market technicals were positive and strong, with volume traded higher than the previous day in the midst of positive breadth and high buying pressure as revealed by Investdata’s Sentiments Report showing 99% ‘buy’ volume and 1% ‘sell’ position. Total transaction volume index stood at 0.53 points, just as the energy behind the day’s performance was relatively weak with the Money flow index dropping further to 40.63pts, from the previous day’s 42.53pts, an indication that funds left the market, despite closing on a positive note. This can be translated to mean that the expected inflow from the recent CBN policy on excess Cash Reserve Requirement (CRR), and others are yet to hit the market.
Index and Market Caps
At the close of trading, the benchmark index gained 381.78 basis points, representing a 1.10% growth, from its 34,843.44bps opening, just as market capitalization rose by N199.49bn to N18.41tr, from N18.21tr, also representing 1.10% appreciation in value.
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Tuesday’s upturn was due to increased buying interests in stocks like Dangote Cement, Lafarge Africa, Guaranty Trust Bank, Zenith Bank, UBN, Vitafoam, and Dangote Sugar, among others. These impacted positively on Year-To-Date gains which increased to 31.23%, just as YTD gain in market capitalization grew to N5.57tr representing a 42.16% growth above the opening value.
Bullish Sector Indices
Sectoral indexes were bullish, with the NSE Insurance taking a lead, after gaining 3.50%, followed by Industrial Goods, Banking, Consumer Goods and Oil/Gas, rising by 2.40%, 2.04%, 1.37% and 0.42%respectively.
Market breadth turned positive as advancers outnumbered in the ratio of 29:14; transactions in volume and value terms were mixed with volume rising by 26.58% to 264.24m shares, from previous day’s 208.09m units, while value declined by 20.36% to N2.95bn from Monday’s N3.7bn. Volume was driven by Access Bank, FBNH, Zenith Bank, Dangote Sugar and Jaiz Bank.
The best performing stocks for the session were Lasaco and AXA Mansard Insurance, which gained 10% and 9.37% respectively to close at N0.33 and N0.70 per share, on market forces and low price attraction after Mansard was adjusted for a bonus of 17 new shares for seven held. On the flip side, Redstar Express and Unity Bank lost 9.76% and 8.82% of their value, closing at N3.05 and N0.62 per share, also on market forces.
We expect the rebound to continue as players interpret the impact of funds rotation and the current dividend yields provided by the pullbacks as bargain hunters take advantage of the situation to reposition. Investors should at this point target solid companies 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 time frame, 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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