NGX Gains N350bn In August, As Low Caps Rally, Sectorial Indexes Slide

Market Update Roundup for August 2021 

The nation’s stock market in August extended its recovery and bullish trend for the second successive month and also changed the ten-year historical pattern of closing negative to positive back to back in 2020 and 2021.  Despite pulling back in the last two trading sessions of the month on profit-taking and correction.  

The period under review resisted decline to consolidate and side trended on positive sentiments for better-than-expected half-year corporate earnings and positive economic data as players positioned for interim dividends from the big banks. Four of the banks recently notified the exchange and investors of delays from their primary regulator- the Central Bank of Nigeria (CBN) in approving the financials. The wait will now be extended to September.  

Meanwhile, the new month of September, being the concluding part of the third quarter, will not only witness a mixed trend as a result of new positioning towards the Q3 numbers expectedly but also experience reactions to earnings from few listed equities yet to release their half-year numbers, especially the dividend-paying banks. Also, the corporate actions in the new month will influence the expected mixed outlook for the period.  

Note that, economic recovery despite being weak or threatened by the insecurity in the nation and inconsistent policies, will impact the market positively as improvement in different sectors and industries would guide investment decisions ahead of the year-end.  As the government and CBN intervention in critical sectors have been reflected in Q2 GDP report released recently.  This will further support the stock market as companies in these critical sectors and others have started positing better performance and stronger numbers.  

Despite the nation’s inflation remained high, the four months’ consecutive slide to 17.38%, positive Q2 GDP of 5.01%, and the improvement in Nigeria’s Purchasing Managers’ Index (PMI) of 55.6 points, from the June position of 53.4 points, and with COVID 19 cases still being reported but at a much slower rate, investors’ buying interest and sentiments remain positive. This can be linked to the grossly undervalued state of Nigerian stocks at this time, even as the bearish mode and declining rate in the fixed income market continue to support the market, despite the exchange market problems that being address by CBN in its move to ban BDC and introducing the e-Naira platform. 

We believe effective coordination among the policymakers will reduce policy mismatch, summersaults and promote realistic economic reforms, structural adjustments, effective disbursement of capital project funds, and real change in the implementation style of the government necessary to further support the seeming economic recovery by enhancing productivity and national output needed to support growth.  

The bull run during the month of August was obvious in the 22 trading sessions of the month, as the market closed positively in 13 days, and was down in 9 sessions to extend the previous month’s positive outlook. It also reduced the year-to-date loss suffered by the NSE’s All-Share Index to 2.61%, owing to impressive earnings, low price to earnings, and high yields in equity assets. Despite the socio-political challenges and others, many stocks remain attractive, offering high margins of safety and upside potentials. 

Meanwhile, during the month under review, the key performance All-Share index gained 672.53 basis points, closing at 39,219.61 basis points, after touching a high of 39,678.04bps and low of 38,532.78bps, from the 38,547.08bps it opened for the month, representing a 1.74% growth. This came with an improved buy position in a high, medium, and priced stocks, that supported the uptrend witnessed during the month. 

The buying volume of total transactions for the month was 60%, while the selling position was 40%, while the volume index for the period was 0.75. Market capitalization for the month gained N350.46 billion, closing at N20.43 trillion, from an opening value of N20.08 trillion, representing a 1.75% value gain. 

The market sustained mixed sentiment and trend for stocks, especially with the stronger earnings, oscillating oil prices, the expectation of interim dividend and investors going with growth and defensive stocks that have strong yields to hedge against high inflation in the midst of a stronger US$ and depreciation of the Naira against other currencies.  

Traded volume for the month was down by 1.39% to 4.97 billion shares from 5.04 billion units in the month of July, even as market breadth for the period was negative with decliners outnumbering advancers in the ratio of 51:43. This reflected on sectoral indices that closed lower in the period under review. 

The sectoral performance chart below shows that all the sector indexes were down, led by NGX Consumer goods after losing 7.61% followed by Insurance, Oil/Gas, Industrial goods and Banking with 3.41%, 2.27%, 1.35%, and 1.15% respectively, as investors took profit and reposition their portfolios. The only performance index that closed higher during the month, was NGX Premium that closed with 1.25%  

August’s best-performing stocks were dominated by low cap companies as consumer goods company Honeywell Flourmills topped the table with gained 154.76% on impressive earnings and market hearsay of acquisition by Flourmill Nigeria; followed by UPDC, which appreciated by 55% on market sentiments and recovery financial position.  Others are PharmDeko, 48.62%; Morison Industry, 45%; Transcorp Hotel, 44.82%; Courtville, 34.78%, Skyway Aviation 28.16%, Boc Gas 26.63%, Airtel Africa 21.95%; and Conoil, 20.80%, among others. 

Source; Investdata Research 

The worst-performing stocks, on the other hand, were  Meyer, which share price was adjusted for N1.50 that was above its market value. Next was SOCA that had suffered a free fall on the exchange due to lack of information and red position of the company, others that topped the losers’ chart are Juli Pharmacy, University Press, Nigerian Breweries, Mutual Benefits, LASACO, Champion Breweries, Coronation Insurance, and Transcorp  

Source: Investdata Research 

Technical Analysis of July market

NSEASI MONTHLY TIME FRAME 

Speculative traders and sentiments have pushed the market into a strong recovery trend as revealed by the monthly time frame RSI and money flow index but players trade with caution to avoid a bull trap.  As the NSE composite index has formed a symmetrical chart pattern on the monthly chart. On a week time frame, clearly signaled impending price correction, before any retracement in the new month. 

The symmetrical triangle chart pattern on the multiple time frame of daily, weekly, and monthly supports the continuation of the current trend or reversal depending on market forces and news, now that oil price has rebounded to trade above $71, also the government planning to borrow more on a lower rate due to high cost servicing debt.  

Investors and traders should stay very cautious with their investments throughout the end of 2021 and beyond, by having good entry and exit strategies at all times. 

Market Outlook

We expect the current trend to continue on until other interim dividend-paying banks like GTCO, UBA, Access Bank and Stanbic IBTC release their numbers, as Zenith Bank flattish performance despite the 30 kobo interim dividend has kept the market in this mode. 

The mixed intraday movement is likely to persist as the month of September progresses in the midst of profit booking and investors repositioning their portfolios ahead of Q3 numbers. This is also against the backdrop of the fact that the capital wave in the financial market may resurface in the midst of relatively low-interest and declining rates in the fixed income market, high inflation and weak economic recovery and outlook for 2021 as the government and its economic managers are going front and back with mismatch policies and action here and there. 

Also, investors and traders are positioning amidst the changing sentiments in the hope of improved liquidity and positive economic indices to continue and support the reversal of the current correction.

We see investors focusing on portfolio adjustment and rebalancing by targeting companies with strong potentials to grow their dividend on the strength of their earnings capacity.

Again, the current undervalue 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 for the rest of the year. 

However, the strong and faster recovery may continue, depending on market forces, going forward, as propelled by expected Q3 earnings reports, until the next MPC meeting next.

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