NGX Index To Breakout On Market Reaction To Positive Q2 GDP Numbers

Market Update for August 26

Nigeria equity market on Thursday continued its consolidation move as the NGX index inched up on a low traded volume and wide positive market breadth due to increased buying interest across the major sectors of the exchange.  

The anticipated positive news of Q2 GDP growth of 5.01% was released to the market by the NBS to increase the number of good news despite the lingering social-political and structural impediments which had hindered the nation economic progress and peace.

The better than expected Q2 GDP data was not a surprise to us in Investdata as the just concluded half year earnings season and other macroeconomic indices have given insight before now, as the purchasing managers index hits 18 months high of 55.4 points as of July from 53.6 point in June according to Stanbic IBTC Bank’s report. 

Also, the Consumer Price iIndex, which measures price movement of goods and services recently, recorded four straight months of decline as inflation figure for July stood at 17.38% from its high of 18.28% in March this year.

Despite the geometric growth of 5.01% against Q1 0.51% and when compared with the negative position of 6.10% in Q2 2020 which was a problematic year of COVID-19, recession, EndSARS and others, as a low base year. 

What is important here is that can this growth be sustained in the face of uncertainties here and there?  Nobody knows what will happen next, so keep your mind open because you’re in the market to make money. 

This is the last week of August. This is the time to think about this sort of thing.  As this remains, the fastest and highest growth the nation economy has recorded in the last 24 months, which was driven by non-oil sector, an indication that agricultural, manufacturing, services and others, are looking up as the economic recovery remains a plus for the stock market, as corporate earnings have given insight before now.

Meanwhile, Thursday’s trading started in the green before oscillating on position taking across the sectors and low cap stocks which pushed the NGX index to an intraday high of 39,482.35 basis points, from its low of 39,449.82bps. Thereafter, it closed slightly above the opening point at 39,477.18bps.

Market technicals were positive and mixed as volume traded was lower than that of the previous day in the midst of breadth favouring the bulls on a positive sentiment as revealed by Investdata’s Sentiment Report showing 84% ‘buy’ volume and 16% sell position. Total transaction volume index stood at 0.81 points, just as the momentum behind the day’s performance was relatively strong, with Money Flow Index reading 68.96points, from the previous day’s 63.22 points, an indication that funds entered the market.

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Index and Market Caps

At the end of the trading session, the composite NGXASI gained 27.18bps, closing at 39,477.18bps, from its opening level of 39,450.00bps, representing a 0.07% up, just as the market capitalisation rose by N14.23 billion at N20.57tr, from the opening value of N20.55tr, representing a 0.07% value gain.

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Thursday upturn was due to buying interest in Presco, Eterna, UPDC, Honeywell, Access Bank, ETI, NAHCO, Caverton, FCMB and Mansard, among others. These impacted mildly on Year-To-Date loss, reduced it to 1.97%, just as the loss in market capitalisation YTD stood at N497.77bn, representing a 2.33% decline from the year’s opening value.

Mixed Sector Indices

Performance indexes across the sectors were up, except for the NGX Consumer and Industrial Goods that closed flat, while the NGX Insurance Index led the advancers, after gaining 2.33%, followed by Energy and   Banking with 0.20% and 0.09% respectively.

Market breadth turned positive as gainers outnumbered losers in the ratio of 27:12, while transactions in volume and value terms were mixed as investors exchanged 186.33m shares worth N1.79bn, compared to the previous day’s 198.33 m units valued at N1.06bn. The day’s volume was driven by trades in Sovereign Trust Insurance Wapco, Honeywell, Mutual Benefits Assurance and UPDC.

Eterna and UPDC were the best-performing, gaining 10% and 9.74%, closing at N7.50 and N1.69 per share respectively on market sentiments and forces. On the flip side, Ikeja Hotels and SCOA lost 10% and 9.43% respectively, closing at N1.26 and N1.44 per share, on selloffs.

Market Outlook

We expect a breakout from the ranging trend as the market reacts to the good news of Q2 GDP growth ahead of month-end window dressing and expected first-tier banks results, as well as the continued repositioning of portfolios ahead of the last quarter of the year.

Also, investors are still observing the interplay of forces in the FX market as the CBN plan to launch a digital currency platform. 

The day’s low volume suggests that institutional investors and others are still cautiously looking at the numbers.

It is noteworthy that oil price rebounded in the international market; corporate actions, as well as the interim dividend possibilities, are around the corner.

We note also that some stocks are trading within their ‘buy’ range to become more attractive at this point for income investors and traders, even as the market anticipates positive news, as oil price continues to oscillate above $68pb to support the global economy 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 and beyond, looking the way of mispriced equities ahead of interim dividend announcement and last quarter economic activities

This is because in spite of 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 September.

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Ambrose Omordion

CRO|Investdata Consulting Ltd

Tel: 08028164085, 08179547605