NGX Index Rebounds, Amid Mixed Trend, Reshuffling, Caution, Interim Dividend Expectation
Market Update for August 3
It was a mixed session on Nigerian Exchange Tuesday as buying interests in telecommunication stocks continued, as investors digest corporate earnings released so far, which impacted positively on the NGX index action, while awaiting those of dividend-paying banks, ahead of macroeconomic reports. The index action broke out the recent resistance level on a low traded volume, extending the market uptrend for the third successive trading session despite the negative breadth. As a result, this breakout is something the market would confirm at midweek’s trading before jumping fully into position amid lingering sector rotation and portfolio rebalancing on the higher than expected earnings reports.
It was a mixed trading session on Tuesday as highly capitalised stocks pushed the market up with more sellers and sectorial indexes were down, reflecting sustained profit-taking activities. Also noteworthy is the fact that the market indicators are signalling the onset of a new trend and entrance of funds into the market at this point. We, therefore, advise traders to trade with caution on Wednesday as we look to confirm the recent breakout, while investors should continue to study the numbers and position accordingly.
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Tuesday’s trading started on the upside and it was sustained for the rest of the session, on position-taking among the high and low priced stocks, a situation that pushed the NGX index to an intraday high of 38,927.75 basis points from its lows of 38,604.72bps, before closing above its opening level at 38,917.99bps.
Market technicals were mixed and weak, while volume traded was lower than that of the previous day, in the midst of negative breadth and buying sentiments as revealed by Investdata’s Sentiments Report showing 97% ‘buy’ volume and 3% sell positions. Total transaction volume index stood at 0.97 points, just as energy behind the day’s performance was relatively strong, as seen in the 64.15pts Money Flow Index, compared to previous day’s 58.39pts, confirming the inflow of funds into the market as corporate earnings beat expectation.
Index and Market Caps
The benchmark NGXASI, at t the end of the day, gained 313.27 basis points, closing at 38,917.99bps, from an opening level of 38,604.72bps, representing a 0.81% growth, just as market capitalization rose by N163.22bn, closing at N20.28tr, from its opening value of N20.13tr, also representing a 0.81% appreciation in value.
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The day’s upturn was driven by price appreciation by high cap telco giants- Airtel and MTNN, as well as Unilever Nigeria, and Guinness, among others, which impacted positively on Year-To-Date loss, reducing it to 3.36%, while the loss in market capitalization YTD dropped to N779.92bn, representing a 3.67% drop from its opening value for the year.
Bearish Sector Indices
Performance indexes across sectors were bearish, except for the NGX Industrial goods that was flat, while NGX Insurance index led the decliners, after losing 0.97%, followed by Banking, Consumer Goods and Oil/Gas with 0.81%, 0.26% and 0.24% respectively.
Market breadth remained negative as losers outnumbered gainers in the ratio of 21:12, while transactions in volume and value terms were mixed as stockbrokers traded 231.45m shares worth N2.13bn, compared to the previous day’s 244.29m units, valued at N1.91bn. Volume was boosted by trades in Transcorp, Jaiz Bank, Honeywell Flour, Wema Bank, and Mutual Benefits Assurance.
Also, Wema Bank and UPDC were the best-performing stocks, gaining 5.95% and 5.93%, while closing at N0.89 and N1.25 per share respectively on market forces. On the flip side, FTN Cocoa and Honeywell Flour lost 8.16% and 7.78% respectively, closing at N0.45 and N1.54 per share, on profit-taking.
We expect a mixed trend while portfolio reshuffling continued as market players study and digest the corporate earnings ahead of the results expected from dividend-paying banking stocks. This is as investors continue to observe the interplay of forces following recent developments in the FX market following the Central Bank of Nigeria’s decision to stop the sale of US$ to Bureaux De Change operators. The day’s mixed volume suggests that smart money is taking advantage of the oscillating trend and relatively low prices to reposition. It is noteworthy that oil price continues to oscillate in the international market; even as corporate actions and interim dividend possibilities are around the corner.
We note also 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 $70pb 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 mixed half-year earnings.
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 a 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 the coming week.
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