Equities

NGX Exits Trading Range, Awaits Breakout Of Next Resistance Level

Market Update for May 5

Midweek’s trading on Nigerian Exchange was very volatile, closing lower on a high traded volume and negative breadth that confirmed some measure of profit taking that heightened the losing momentum of the composite NGX All-Share Index, despite the euphoria that followed the better-than-expected Q1 earnings reports, rising inflation and fixed income yields.

The bear-run witnessed in the first two trading sessions of the new month was attributed to profit-taking in high cap stocks, added to effects of the price adjustments in MTNN and Seplat for the dividends proposed by their boards. This further depressed the market, despite the increased buying interests in medium and low priced stocks that had posted outstanding Q1 earnings reports.

As investors continue to reposition and rebalance their portfolios on the strength of the 2020 full-year and Q1 corporate earnings reports, the oscillating trend is likely to persist, especially as qualification and markdown dates are slated for this period. We expect that the ongoing economic recovery would necessarily impact some sectors positively, leading to better performance in the subsequent quarters and the year at large.   

As event unfold, market players should target companies whose earnings growth, quality and value, meet Investdata’s Earnings Gauges, while investing wisely, allowing investment goals guide their decisions, especially entry and exit strategies necessary to ensure they not only survive, but profit from the expected new trend. Be guided also by current price patterns and money flow index now supporting a trend continuation as funds continue flow in and out of the market.

Wednesday’s trading started on the downside due the markdown in share prices of high cap stocks, made worse by profit booking in Stanbic IBTC, Guaranty Trust Bank and Zenith Bank, which dragged down the NGX ASI. In the process, it touched an intraday low of 39,433.81 basis points, from its high of 39, 801.78bps, after which the index closed below its opening level at 39,456.64bps.

Market technicals were negative and weak, with lower traded volume than previous day’s in the midst of breadth that favoured the bears on a high selling pressure, as revealed by Investdata’s Sentiments Report showing 100% ‘sell’ volume. Total transaction volume index stood at 1.17 points, just as energy behind the day’s performance was relatively strong with Money Flow Index reading 73.19pts, from the previous day’s 74.53pts, indicating that funds left the market.

Index and Market Caps

Trading closed for the day with the benchmark NGXASI losing 367.97ps and in the process closing at 39,456.64bps after opening at 39,801.78bps, representing a 0.84% decline, just as market capitalization fell by N192.67bn, closing at N20.64tr, from an opening value of N20.83tr, also representing a 0.85% depreciation value.

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Midweek’s downturn was due to price adjustment and profit taking in MTNN, Seplat, Stanbic IBTC, Guaranty Trust Bank, Julius Berger, Oando, FBNH, Zenith Bank, and International Breweries, among others, which impacted negatively on Year-To-Date loss, raising it further to 2.08%. The decline in market capitalization YTD loss increased to N429.59bn, representing a 1.91% drop below its opening value for the year.

Bearish Sector Indices

Performance indexes across the sectors were down, except for the NGX Industrial Goods that closed 0.27% higher, while Banking led the decliners after losing 1.69%, followed by Consumer goods, Oil/Gas and Insurance with 0.52%, 0.15% and 0.05% lower respectively.

Market breadth turned negative, as decliners outpaced advancers in the ratio of 22:16; even as transactions in volume and value terms were down while stockbrokers traded 349.56m shares worth N3.5bn from the previous day 426.51m units valued at N4.65bn. Volume was boosted by trades in FBNH, Access Bank, Ekocorp, Zenith Bank and UBA.

Lasaco Assurance and Linkage Assurance were the best performing stocks, gaining 9.62% and 9.43% respectively, while closing at N1.71 and N0.58 per share on market forces and price attraction. On the flip side, Stanbic IBTC and Computer warehouse group lost 10% and 9.61% respectively, closing at N45.00 and N2.07per share, on profit taking and selloffs.

Market Outlook

We expect the mixed trend to continue on profit taking, markdown and portfolio adjustments on the strength of the numbers released recently amidst the rising infection rate of the novel coronavirus cases across the globe and the high yields in the fixed income market. We also expect economic data like the 2021Q1 GDP report, April Purchasing Managers’ Index and inflation among others to reveal the state of the economy and give direction. The banking sector remains attractive on the back of the prevailing low prices, despite the Q1 mixed numbers.

Also, the market has moved out of its trading range, waiting to breakout the next resistance level of 39,412.15bps, while trading above the 14 and 20-Day Moving Average. Note that the market may discount the prospects of high cap companies and some blue chip stocks, ahead of their earnings reports.

However, the pullbacks offer bargain hunters and income investors fresh opportunities to reposition in high dividend yields and undervalued stocks, while looking out for quarterly numbers that would support recovery. This is based on the fact that the rising fixed income yields may not be enough to scare all investors away from the equity market.

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 2020 full numbers and expected 2021 Q1 earnings reports, until the next MPC meeting in May.

The NSE’s index action and indicators are heading in the same direction   on a low traded volume and positive buying sentiments in the midst of rising yield in bond and TB.

Also, 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

info@investdata.com.ng

ambrose.o@investdataonline.com

ambroseconsultants@yahoo.com

Tel: 08028164085, 08032055467

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