NGX Index In Mild Recovery Amidst Positioning, Selloffs Ahead Of Q2 Financials

Market Update for June 24

Thursday’s transactions on the Nigerian Exchange were mixed, as the All Share index closed higher, halting three consecutive days of losses on a low traded volume and positive breadth that revealed smart money activities, coinciding with recent contractions witnessed in fixed income market yields.

The renewed buying interest among bargain hunters again reflected in a numbers of stocks and sectors, many of which closed northward as earnings reporting season draws even closer in the midst of weak economic recovery and oil price rallying in the international market.  

As we have always mentioned in our updates, pullbacks create opportunities for repositioning, especially when it has touched its support level to resist further decline, at which point the market becomes even more attractive to jump into positions.

It is noteworthy that the NGX index action’s chart pattern and the major upcoming events in the market like March, April and May full-year accounts, as well as half year earnings reports are expected in July, while interim dividend paying companies results will hit the market in early August, going by historical antecedents of these companies.  These will lift the market, should the expected earnings beat expectations and forecasts.

Technically, the NGX index action has formed a double zigzag and bottom that support an uptrend, but requires volume and a clear candlestick formation to confirm direction which today’s trading should offer insights, being the last trading day in the last full week of June.  Market recovery at this point may be powerful depending on the state of the expected numbers with possibility of maintaining what we saw in 2020 and the last Q1 corporate earnings. 

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On Thursday also, the NGX admitted Guaranty Trust Holding Company (HoldCo) for listing on its Daily Official List, following the delisting simultaneously of Guaranty Trust Bank Plc, having adopted the HoldCo structure, just like FBN Holdings, and FCMB Group, among others (READ MORE).

Thursday’s trading opened on the upside, which was sustained throughout on rekindled repositioning in stocks and sectors that had suffered losses recently to push the benchmark NGX All-Share index to an intraday high of 37,965.04 basis points from its lows of 37,800.89ps. 

The day market technicals were positive and mixed, with lower volume traded than previous day, in the midst of breadth that favours the bulls on a buying sentiment as revealed by Investdata’s Sentiments Report showing 93% ‘buy’ position and 7% sell volume.  Total transaction volume index stood at 0.77 points, just as energy behind the day’s performance was relatively weak, as seen in the 49.96pts Money Flow Index, compared to previous day’s 51.32pts, indicating that some funds left the market.

Index and Market Caps

At the close of the Thursdays trading, the  composite NGXASI gained  149.89bps, closing at 37,954.35bps, from an opening level of 37,804.46bps, representing a 0.40% up, just as market capitalization rose  by N78.12bn, closing at N19.78tr, from its opening value of N19.7tr, also representing a 0.40%  appreciation in value.

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The downturn was driven by selloffs and profit booking in high and low cap stocks like Zenith Bank, FBNH, Access Bank, UACN, Ecobank Transnational Incorporated, and Oando, among others. This mildly impacted on Year-To-Date loss, cutting it to 6.12%, while the drop in market capitalization YTD stood at N1.36tr, representing a 6.43% drop from its opening value for the year.

Bullish Sector Indices

Performance indexes across sectors were up, except for the NGX Insurance that closed 0.30% lower, while the NGX Industrial goods led the advancers after gaining 0.88%, followed by Banking, Oil/Gas and Consumer Goods with 0.61%, 0.33% and 0.20% higher respectively.

Market breadth turned positive as gainers outnumbered losers in the ratio of 20:14, while transactions in volume and value terms were down after stockbrokers traded 167.41m shares worth N1.83bn, compared to the previous day’s 208.36m units valued at N1.6bn. Volume was driven by trades in Zenith Bank, Sovereign Trust Insurance, UBA, Mutual Benefits Assurance and FBNH.

Mutual Benefits Assurance and Portland Paints were the best performing stocks for the day after gaining 10% each, closing at N0.44 and N2.64 per share respectively on market forces.  On the flipside, Juli Pharms and AIICO Insurance lost 9.56% and 7.41% respectively, closing at N1.23 and N1.00 per share, on selloff and profit taking.

Market Outlook

We expect sustained trend after the NGX index action formed a zigzag corrective pattern that support an uptrend as we wait to confirm the trend Friday on market forces, as bargain hunters take advantage of pullbacks to reposition ahead of the quarter-end and earnings season. It is noteworthy that oil price continues its recovery at the international market with full-year and interim dividend possibilities around the corner. 

We note that some stocks are trading within their buy ranges to become more attractive at this point for income investors and traders, even as the market anticipates positive news, while oil price continues to oscillate above $73pb to support global economic and stock market recovery across climates. We also expect the ongoing COVID-19 vaccination to support global and domestic economic recovery that will enhance the market and give direction.

The banking sector and others remain attractive on the back of the prevailing low prices, despite the Q1 mixed numbers.

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 ahead of interim dividend announcement. This is especially given that despite the seeming improvements, fixed income yield continues to offer negative real rate of return due to the galloping inflation.

However, the strong and faster recovery may continue, depending on market forces, going forward, as propelled by expected Q2 earnings reports, until the next MPC meeting in July.


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