NGX Sideways Trend May Persist As Investors Await Trigger For Next Move
Market Update for August 25
Equities’ trading activities on the Nigerian Exchange at the midweek was mixed but relatively quiet, as the NGX All-Share index continued its up and down movement in a ranging mode that signaled consolidation ahead of month-end in the midst of earnings expectation of the big banks and macroeconomic data that would reveal how the economy had fared so far, and also give insight into the future.
Despite the seemingly directionless nature of the market, medium and low priced stocks like UPDC, Capital Hotel, Vitafoam, Honeywell, United Capital, and others are breaking out resistance levels and making new 52-week high on improved volume and positive market sentiment, regardless of the low traded volume that shows the absence of institutional investors at the market arena at this point.
Technically, when the NGX benchmark index or price action of a stock drops on a less than average traded volume as seen in recent trading sessions it suggests that large investors are not selling aggressively, especially as portfolio repositioning and sector rotation are ongoing after the half-year earnings reporting season. The current sideways trend means that the market is waiting for a trigger in the form of news or policy statements capable of moving up or down from this level. This suggests that investors should not panic but allow their investment objectives or goals to guide their decision while staying on.
Midweek’s trading opened slightly on the upside before oscillating on profit booking and position-taking across the sectors and high caps which pushed the key performance index to an intraday low of 39,438.30 basis points, from its highs of 39,481.65bps. Thereafter, it closed marginally below the opening point at 39,450.00bps.
Market technicals were weak and mixed with a higher volume traded than that of the previous day in the midst of breadth favouring the bears on a mixed sentiment as revealed by Investdata’s Sentiment Report showing 27% ‘buy’ volume and 73% sell position. Total transaction volume index stood at 0.85 points, just as the momentum behind the day’s performance was relatively strong, with Money Flow Index reading 63.22points, from the previous day’s 57.78 points, an indication that funds entered the market despite the down market.
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Index and Market Caps
At the end of midweek’s trading, the composite NGXASI lost 10.68bps, closing at 39,450.00bps, from its opening level of 39,460.68bps, representing a 0.03% drop, just as market capitalization fell slightly by N5.6bn at N20.55tr, from the opening value of N20.56tr, also representing a 0.03% value loss.
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Wednesday’s downturn was due to selloffs and profit-taking in GTCO, FBNH, Zenith Bank, Oando, Dangote Sugar, ETI, Nahco, Unity Bank, Mutual Benefits, and Academy Press, among others. These impacted mildly on Year-To-Date loss, increasing it to 2.04%, just as the loss in market capitalization YTD stood at N502.77bn, representing a 2.40% decline from the year’s opening value.
Bearish Sector Indices
Performance indexes across the sectors were down, except for the NGX Industrial Goods that closed flat, while the NGX Insurance Index led the decliners, after shedding 0.53%, followed by Consumer Goods, Banking, and Energy with 0.13%, 0.12%, and 0.10% respectively.
Market breadth remained negative as losers outnumbered gainers in the ratio of 19:17, while transactions in volume and value terms were mixed as investors exchanged 198.33m shares worth N1.06bn, compared to the previous day’s 196.81m units valued at N1.45bn. The day’s volume was driven by trades in Sovereign Trust Insurance, Mutual Benefits Assurance, Jaiz Bank, Regency Insurance, and Trancorp.
Capital Hotel and Eterna were the best-performing, gaining 10% each, closing at N3.19 and N6.82 per share respectively on market sentiments and forces. On the flip side, Academy Press and Pharma-Deko lost 9.76% and 9.52% respectively, closing at N0.36 and N1.71 per share, on profit-taking.
We expect the ranging trend to continue as the market awaits news and policy statement ahead of month-end window dressing, first-tier banks results and Q2 GDP data release, as well as the continued repositioning of portfolios ahead of the year last quarter. Also, investors are still observing the interplay of forces in the FX market as the CBN plans 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’ 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 $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 while enhancing the market and giving direction.
The banking sector and others remain attractive amidst 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 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 next month.
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