NGSE Rebounds, Money Flow Recedes, Amid 2020 Full-Year Earnings Expectations

Market Update for February 15

The nation’s stock market on Monday had a very volatile but mixed session to close higher, thereby halting the previous day’s loss position on a low traded volume and extension of positive breadth that signals reversal of trend. This is an indication of strength to start a new trading week of corporate earnings and economic data expectations, while the market resisted further decline on increased demand for mispriced equities and high yield dividend-paying stocks on low price attraction occasioned by profit taking and pullbacks.

This was also despite the seeming yield improvement in fixed income and foreign exchange forward contracts with the Central Bank of Nigeria (CBN).

The day’s rebound followed renewed buying interests across all stock classes and sectors the NSE’s dividend yield remained attractive and above the prevailing yields in other investment windows.

Also, on Monday, the much-touted plan to increase the pump price of Premium Motor Spirit (otherwise known as petrol) was effected with the product increasing from N162 to N170 per litre in some outlets visited by our correspondent last night. The increase is despite pleas that any further increase could negatively impact the living conditions of Nigerians.

The price pattern of many stocks at the end of Monday’s trading reveals a sharp reversal, which will be confirmed on Tuesday, even as we note that more equities are becoming attractive to investors. However, we reiterate our advice that investors should play dividend and defensive stocks, to reduce their investment risks at the moment and improve portfolio returns; even as the market enters into its biggest earnings season with expectation of corporate actions.

As such, it is important to let your investment objective- entry and exit strategies guide you to survive and profit from the expected new trend, if the full-year earnings reports and dividend news fail to impact and support the current trend, a big rotation in sector trends should also guide you, going into the future.

Meanwhile, Monday’s trading opened slightly on the downside until mid-morning, before oscillating at midday, followed by a rebound by the afternoon on position taking in dividend paying stocks. This pushed the NSE index to an intraday high of 40.573.31 basis points, from its lows of 40,361.30bps, after which the market closed above the opening level at 40,571.67bps.

The day’s market technicals were positive and mixed, with volume traded lower than previous day’s in the midst of breadth that favoured the bulls on a high buying pressure as revealed by Investdata’s Sentiments Report showing 100% ‘buy volume. Total transaction volume index stood at 0.36 points, just as impetus behind the day’s performance remained relatively weak, with Money flow index dropping to 34.86pts, from the previous day’s 37.11pts, indicating a divergence between the NSE index action and MFI. This is suggesting that this rebound will remain weak until funds start finding their way to the market again.

Index and Market Caps

The key performance NSE All-Share Index, at the end of Monday’s trading gained 131.82bps, closing at 40,571.67bps, having opened at 40,439.83bps, representing 0.33% up. Market capitalization similarly recovered N68.96bn to close at N21.23tr from N21.16tr, also representing 0.33% appreciation in value. 

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Monday’s upturn was driven by the buying interests in Seplat, Lafarge Africa, Access Bank, UBA, Julius Berger, Zenith Bank, Guaranty Trust Bank, Neimeth Pharmaceutical, United Capital, and Japaul Gold, among others. Year-To-Date gain rose to 0.75%, just as that of market capitalization stood at N168.2bn, or 0.80%.

Bullish Sector Indices

All sectorial performance indexes closed higher after a long time of bear dominance with the NSE Oil/Gas index topping the advancers by 5.35% on the strength of gains recorded by Seplat that may be linked to the company’s strong foray into the gas sector as energy of the future. It was followed by the NSE Banking index with 1.81%; while Insurance, Industrial and Consumer Goods chalked 1.38%, 0.35% and 0.01% respectively.

Market breadth remained positive, as advancers outnumbered decliners in the ratio of 31:13; just as activities in volume and value terms were down by 47.87% and 58.31% respectively, after players exchanged 206.24m shares worth N2.16bn, as against previous day’s 395.62m units valued at N5.19bn. Monday’s volume was boosted by trades in Zenith Bank, Mutual Benefits Assurance, UACN Property, Fidelity Bank and United Capital.

Seplat and Japaul Gold were the best performing, after gaining 10% and 9.86% to close at N544.50 and N0.78 per share respectively, on earnings expectation and market forces. On the flip side, Conoil and Royal Exchange Assurance lost 10% each, closing at N18.90 and N0.27 per share, on profit taking and market forces.

Market Outlook

We expect the market to sustained this recovery move and trend as bargain hunters increase their positions ahead of better dividend yield occasioned by price corrections that had created entry opportunities for discerning investors ahead of earnings expectations. Again, the way to go is: Target dividend-paying stocks and fundamentally sound companies with growth prospects in 2021, looking the way of mispriced equities. This is especially given the rising oil prices that have so far supported the economy and equity market, despite the seeming improvement in the fixed income yield which had remained at negative real rate of return due to the subsisting high inflation.

However, the strong and faster recovery may continue, depending on market forces, going forward, as propelled by expected 2020 full earnings reports, until the next MPC meeting in March.

The NSE’s index action and indicators are in divergence on a low 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 new year.

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Ambrose Omordion

CRO|Investdata Consulting Ltd

Tel: 08028164085, 08032055467