Market Update for May 27
Nigeria’s equity market again had a mixed session on Thursday, fusing the bear-run as the benchmark NGX All-Share index closed lower at an increased magnitude due to price depreciation by highly capitalized and medium-sized stocks that suffered losses amidst the continued profit taking and selloffs.
The NGX index action extended its downward trend for the ninth successive session on a low traded volume and negative breadth that made stocks become more attractive while market players and analysts, among others continue their study of recent economic data, including the better than expected Q1 numbers. This is in their bid to reposition their portfolios ahead of half year earnings season, even while the market still expects audited numbers from companies with March financial year-end.
Consequently, we expect that traders will begin to engage in more of speculations on sector rotation and individual stocks trend, while at the same time expecting positive news and statements from the country’s economic managers.
Note that the ongoing divergence in corporate earnings and falling share prices, reveal the potentials of the equity market to create wealth for discerning investors who take advantage of these pullbacks to position in undervalued stocks with high possibility of beating their earnings forecasts. This should particularly be expected at this time that earnings are growing and prices going south in a recovery market, an indication that, this trend will not last long before correcting itself.
There is an interesting and changing price pattern and trading environment, where market indicators will be in green until between 2pm to 2.10pm when it succumbs to last minutes pressure, closing red as we have witnessed in the last five trading days.
This call for a change in investor perception and trading strategies to stay ahead of the market, thereby ensuring that you are among the few who make money from equities’ trading, which is possible through regular learning of technical analysis and candlestick pattern. This is the advantage Investdata’s Comprehensive Stock Market trading videos and literature provides, as it covers fundamental and technical analyses that help you make effective and profitable trades.
Investors should, therefore, wait to confirm the new trend by focusing on the sectors with strong potential to grow their earnings performance and that have high upside price rally outlook. Here, investors should target companies with earnings growth, quality and value that can match Investdata’s Earnings Gauges.
Thursday day’s trading started slightly on the upside but oscillated and pulled back in the last minutes of trade on selloffs that pulled the NGX index to an intraday low of 38,056.21 basis points, from its highs of 38,300.48bps. Thereafter, the benchmark index closed below the day’s opening level at 38,056.21bps.
Market technicals were negative and weak, as volume traded was higher than previous day’s in the midst of breadth favoring the bears on a negative sentiment as revealed by Investdata’s Sentiments Report showing 100% ‘sell’ volume and 0% buy position. Total transaction volume index stood at 0.74 points, just as the impetus behind the day’s performance was relatively weak, even as Money Flow Index improved marginally to 29.63pts, from the previous day’s 28.39pts, indicating that funds entered the market, despite closing down.
Index and Market Caps
The NGX All-Share Index, at the close of Thursday trading lost 177.47bps at 38,056.21bps from an opening figure of 38,256.76bps representing a 0.46% decline, just as market capitalization became leaner by N92.5by, closing at N19.84tr, also representing a 0.46% value loss.
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Thursday’s downtrend was attributed to selloffs in Dangote Cement, Guaranty Trust Bank, UACN, and Ecobank Transnational Incorporated, among others. This impacted negatively on Year-To-Date loss, increasing it to 5.52%, while the drop in market capitalization YTD increased to N1.74tr, representing a 6.88% drop below its opening value for the year.
Bearish Sector Indices
Performance indexes across sectors were down, except for NGX Consumer goods that closed 0.13% higher, while the NGX Industrial goods led the decliners after losing 1.07%, followed by Banking and Insurance with 0.36% and 0.25% lower respectively.
Market breadth turned negative, as losers outpaced gainers in the ratio of 21:16; while activities in volume and value terms were mixed, with investors trading to 214.17m shares worth N1.34 billion, as against previous day’s 203.09m units valued at N1.82bn. Volume was boosted by trades in Sovereign Trust Insurance Mutual Benefits, UACN, Transcorp and Sterling Bank
Mutual Benefits Assurance and Cutix were the best performing stocks for the session, gaining 7.32% and 7.14%, closing at N0.44 and N2.25 per share respectively on market forces. On the flipside, Sovereign Trust Insurance and ABC Transport lost 10% and 8.11% respectively, closing at N0.27 and N0.34 per share, on selloffs and profit taking.
Market Outlook
We expect a reversal in trend and slowdown in selloffs and profit taking in the midst of positive earnings and falling prices in the face of the global economic and market recovery across and the high yields in the fixed income market. We also expect the ongoing vaccination to support global and domestic economic recovery that will support the market and give direction.
The banking sector and others remains attractive on the back of the prevailing low prices, despite the Q1 mixed numbers.
Also, the market just started a new downtrend as it trades below the 14 and 20-Day Moving Average. Note that the market may discount the political and insecurity challenges headlines, ahead of half-year 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 Q1 earnings reports and expected march full year audited accounts.
The NGX’s index action and indicators are heading in the same direction on a low traded volume and mixed 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
ambrose.o@investdataonline.com
Tel: 08028164085, 08032055467
