NGX Index Rebounds, Awaits Positive News, Amid Mixed Trend, Repositioning

Market Update for June 8

Nigeria’s equity market continued its volatility on Tuesday after the benchmark NGX All-Share Index closed higher, reversing previous day’s loss on the back of buying interests in highly priced and medium cap stocks, in the midst of rising yields and expected May inflation reports from the National Bureau of Statistics (NBS).

Sector rotation continued ahead of the earnings reporting season on the Exchange, with investors targeting consumer goods stocks with high elasticity of demand, a factor likely to boost numbers from these companies, especially those with March and May year-end accounts, and ahead of the half-year earnings reports.

The market continued its recovery from the May pullbacks and corrections, as Tuesday’s NGX index action rebound was on an above traded volume, high buying pressure and a slightly negative breadth. The market’s low Price-to-Earnings Ratio remains a major attraction, just as many companies are likely to sustain this uptrend in earnings performance. 

Market participants are also waiting to confirm a breakout of the 39,000 basis points mark, or test the level and pullback to strengthen the market’s recovery mode. Already, there are tell-tale signs that smart money is taking positions ahead of Q2 numbers in the midst of the increasing insecurity challenges and rising yields, as revealed by volume and money flow index.

Following the daily and weekly chart, the NGXASI index’s action shows a reversal and positive picture going into the month, as the market is set to rally and experience a mixed trend on profit booking, among other factors. We expect full-year and interim dividend announcements to support market fundamentals and attract more funds to the market.

Tuesday’s trading started on the downside in the morning and oscillated till midday before rebounding by the late afternoon on position taking in blue-chip stocks, among others, a situation that pushed the composite index to an intraday high of 38,881.70bps, where it closed from its lows of 38,661.47bps.

Market technicals were positive and mixed with higher volume traded than previous day’s in the midst of negative breadth and high buying pressure, as revealed by Investdata’s Sentiments Report showing 100% ‘buy’ volume. Total transaction volume index stood at 0.86 points, just as the impetus behind the day’s performance was relatively strong, as Money Flow Index read 57.59.pts, from the previous day’s 51.10pts, indicating that funds entered the market.

Index and Market Caps

At the end of Tuesday’s trading, the benchmark NGXASI gained a strong 192.72bps, closing at 38,881.70bps from an opening figure of 38,688.98bps, representing a 0.50% growth, just as market capitalization rose by N101.8bn, closing at N20.27tr, compared to its opening value of N20.16tr, also representing a 0.50% appreciation in value.

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The day’s upturn was driven by buying interests in Dangote Cement, Okomu Oil Palm, Unilever Nigeria, Flour Mills, Vitafoam, PZ Cussons, Dangote Sugar, and Guaranty Trust Bank, among others. This impacted positively on Year-To-Date loss, reducing it to 3.45%, while the drop in market capitalization YTD reduced to N790.69bn, representing a 3.74% drop below its opening value for the year.

Mixed Sector Indices

Performance indexes across sectors were mixed, with the NGX Insurance and Banking closing lower by 1.03% and 0.05% respectively, while the NGX Industrial goods led the advancers after gaining 1.07% followed by Consumer and Energy that were up by 0.57% and 0.08% respectively.

Market breadth, however, remained negative, as decliners outnumbered advancers in the ratio of 17:15; while activities in volume and value terms rose, after stockbrokers traded 218.51m share worth N1.59bn, compared to the previous day’s 210.75m units valued at N1.5bn. Volume was driven by trades in Courtville Business Solution, Fidelity Bank, and AXA Mansard Insurance.

Okomu Oil and Learn Africa were the best performing stocks, gaining 10% and 9%, closing at N106.15 and N1.09 per share respectively on market forces and earnings expectation. On the flipside, Computer Warehouse Group and Regency Insurance lost 9.42% and 8.16% respectively, closing at N1.28 and N1.38 per share, on selloffs.

Market Outlook

We expect a mixed trend as profit taking and positioning continue in expectation of positive news, economic data and others in the midst of oscillating oil price and global economic and stock market recovery across climates, as high yields in the fixed income market depress equity 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 remain attractive on the back of the prevailing low prices, despite the Q1 mixed numbers.

The World Bank Group, on Tuesday, released its June 2021 Global Economic Prospects, showing that the global economy could expand as much as 5.6% this year, while Nigeria’s GDP could grow at a modest 1.8% rate in 2021, and then 2.1% next year. This is however dependent on certain internal and external conditions the report listed (READ MORE)

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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