NGX Indicators Bow To Pressure, As July PMI Raises Hope Of Better H1 GDP Data

Market Update for August 5

Transactions on the Nigerian Exchange limited on Thursday were mixed and volatile, as the NGX All-Share index action finally bowed to profit-taking and selling pressure after resisting for so long, halting four successive sessions of bull transition on a very low traded volume and positive market breadth.

Despite the pullback, portfolio repositioning and sector rotation continued on the strength of half-year corporate earnings presented by quoted companies, while oil price continued to oscillate above $68 at the international market which is supporting the nation’s external reserves. There is also an expectation that the SDG grant from the International Monetary Fund will further boost the reserves eventually.

Meanwhile, Purchasing Managers’ Index for the first time in 18 months hit 55.4 points in July from 53.8points in June according to a report by Stanbic IBTC.

The seeming pullback in banking stocks makes the sector more attractive for discerning investors, especially those that are income or dividend inclined, given the positive impact on the dividend yield of banks with the interim dividend payment policy.

With the PMI for the month of July already released showing an improvement and pointing to the possibility of better Q2 GDP, the market is now looking forward to the half-year earnings reports of these first-tier banks, as well as other macroeconomic data.

Despite, the change in market trend, players should keep their eyes on companies with strong earnings power that will support their future price. Growth and value stocks should be the attraction in the market now, considering the strength of the numbers emanating from the companies and what is happening in the FX market. This is because some companies are net beneficiaries of the Central Bank of Nigeria policy stopping the sale of foreign exchange to Bureaux De Change operators.

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Thursday’s trading started on the upside but oscillated between midday and afternoon to pullback on profit taking in banking, energy stocks and other high priced equities that pushed the benchmark index to an intraday low of 38,797.27 basis points from its highs of 38,950.74bps, before closing below its opening level at 38,801.51bps.

Market technicals were negative but mixed, as volume traded was lower than that of previous day in the midst of breadth that favour the bulls on a high sellingsentiments as revealed by Investdata’s Sentiments Report showing 97% ‘sell’ volume and 3% buy positions. Total transaction volume index stood at 0.60 points, just as momentum behind the day’s performance was relatively strong, as seen in the 70.78pts Money Flow Index, compared to previous day’s 69.73pts, confirming the inflow of funds to the market despite the profit-taking activities of traders.

Index and Market Caps

The composite NGXASI, at the end of day’s trading, shed 126.32 basis points, closing at 38,801.51bps, from an opening level of 38,927.83bps, representing a 0.32% down, just as market capitalization fell by N65.82bn, closing at N20.22tr, from its opening value of N20.28tr, also representing a 0.32%  depreciation.  

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The day’s downturn was driven by depreciation in the prices of high and medium cap stocks like MTNN, GTCO, Zenith Bank, FBNH, Access Bank, Ardova, United Capital, Oando, and Transcorp, among others, which impacted negatively on Year-To-Date loss, increasing it to 3.64%. The loss in market capitalization YTD also inched up to N840.61bn, representing a 3.99% decline from its opening value for the year.

Mixed Sector Indices

Performance indexes across sectors were mixed, as the NGX Banking and Oil/Gas closed 0.30% and 0.04% lower respectively, while the NGX Consumer Goods Index led the advancers, after a lean 0.26% gain, followed by Insurance and Industrial Goods with 0.25% and 0.04%respectively.

Market breadth turned positive as gainers outnumbered losers in the ratio of 18:16, while activities in volume and value terms were mixed as stockbrokers transacted 139.78m shares worth N1.41bn, compared to the previous day’s 206.29m units valued at N1.07bn. Volume was boosted by trades in UBA, GTCO, Zenith Bank, Wema Bank, and AIICO Insurance

Conoil and CHI Plc were the best-performing stocks for the session, after gaining 10% and 8.93% while closing at N20.35 and N0.61 per share respectively on the strength of the impressive earning and two kobo interim dividend respectively. On the flip side, Ardova and Veritaskap lost 6.25% and 4% respectively, closing at N15.00 and N0.24per share, purely on profit-taking.

Market Outlook

We expect the mixed trend to continue, as portfolio reshuffling and interpretation of the corporate earnings are ongoing ahead of the July inflation data release, as well as the Q2 GDP and results from interim dividend-paying banks. Also, investors are still observing the interplay of forces following recent developments in the FX market with the decision to stop the sale of US$ to BDC operators immediately. 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; corporate actions, as well as the interim dividend possibilities 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 the global economy and stock market recovery across climates. We also expect the ongoing COVID-19 vaccination to support a 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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Ambrose Omordion

CRO|Investdata Consulting Ltd

info@investdataonline.com

info@investdata.com.ng

ambrose.o@investdataonline.com

ambroseconsultants@yahoo.com

Tel: 08028164085, 08179547605

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