Market Update for May 18
The nation’s stock market sustained its volatility and mixed trend on Tuesday with 4the composite NGX All-Share Index closed lower on a low traded volume and negative breadth, extending the bear-run for the second consecutive session. The day’s loss followed selloffs and profit taking in high cap and low priced stocks like BUA Cement, Zenith Bank, UACN and others, which dragged the NGX index down.
The increasing borrowing of the government locally and international have remained a source of concern for many investors, especially through bond issuance on rising yields, just as the inflation rate slowed down slightly to 18.12% in April, compared to 18.17% in March.
The marginal drop in Consumer Price Index is positive and should support investment within the economy, as investors await the outcome of next week’s MPC meeting and economic news which will largely determine market direction for the rest of Q2 until the half year earnings season kick off in July. It is important at this point of pullbacks for traders and investors take advantage of the dip to target companies with earnings growth, quality and value that can match Investdata’s Earnings Gauges.
It is time, therefore, to invest wisely, guided by investment goals, especially entry and exit strategies necessary to ensure they not only survive, but profit from the expected new trend. Be guided also by current price patterns and money flow index now supporting a trend continuation as NGX index action resisted to trade above 39,000 mark after testing 38,850.57 level on 8% price decline in BUA Cement before closing with a 5% loss.
Tuesday’s trading started on a marginal downside before oscillating in the midday to afternoon on profit taking in high cap stocksand position taking among medium companies that posted impressive numbers. This pushed the benchmark index to an intraday low of 38,850.57 basis points from its highs of 39,308.06bps, before closing below its opening level at 39,023.28bps.
Market technicals were mixed and negative, as volume traded was lower than previous day’s in the midst of breadth favoring the bears on a mixed sentiment, as revealed by Investdata’s Sentiments Report showing 52% ‘sell’ volume and 38% buy position. Total transaction volume index stood at 0.71 points, just as the energy behind the day’s performance was relatively strong with Money Flow Index looking down to read 51.64pts, from the previous day’s 57.28pts, indicating that funds left the market on a daily chart while looking up on a weekly to signal entrance of funds.
Index and Market Caps
At the end of the day’s trading, the key performance index lost 283.19bps, closing at 39,023.28bps from an opening figure of 39,307.19as representing a 0.72% decline, just as market capitalization fell by N148bn, closing at N20.34tr, from its opening value of N20.49tr, also representing a 0.72% depreciation in value.
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The downturn continued on Tuesday as selloffs and profit taking hit stocks like BUA Cement, Zenith Bank, UACN, FBNH, Ucap, Africa Prudential, Champion Breweries, and Fidelity Bank among others. This impacted negatively on Year-To-Date loss, increasing it to 3.10%, while the drop in market capitalization YTD increased to N717.30bn, representing a 3.42% below its opening value for the year.
Mixed Sector Indices
Performance indexes across the sectors were mixed, as NGX Oil/Gas and Banking closed 0.26% and 0.03% higher respectively, while the Industrial Goods led the decliners after shedding 2.57%, followed by Insurance and Consumer goods with 1.09% and 0.05% lower respectively.
Market breadth turned negative, as losers outnumbered gainers in the ratio of 22:15; just as transactions in volume and value terms were down 42.8% and 48.4% respectively, after stockbrokers traded 204.65m shares worth N1.84bn, driven by trades in Courtville Business Solution, Fidelity Bank, Zenith Bank, Access Bank and Transcorp.
Associated Bus Company and Eterna were the best performing stocks, gaining 10% and 9.93% respectively, closing at N0.44 and N7.97 per share respectively on market forces and impressive Q1 numbers. On the flip side, Portland Paints and Champion Breweries lost 9.85% and 9.68% respectively, closing at N2.47 and N1.96 per share, on selloffs.
Market Outlook
We expect the mixed trend to continue on profit taking and repositioning, in the midst of Q1 GDP expectation and outcome of next week’s MPC meeting, despite the rising infection rate of the novel coronavirus across the globe and the high yields in the fixed income market. We also expect economic data like the 2021Q1 GDP report, April Purchasing Managers’ Index and inflation among others to reveal the state of the economy and give direction. The banking sector remains attractive on the back of the prevailing low prices, despite the Q1 mixed numbers.
Also, the market just started a new downtrend as it trades below the 14 and 20-Day Moving Average. Note that the market may discount the political and insecurity challenges headlines, ahead of half-year earnings reports.
However, the pullbacks offer bargain hunters and income investors fresh opportunities to reposition in high dividend yields and undervalued stocks, while looking out for quarterly numbers that would support recovery. This is based on the fact that the rising fixed income yields may not be enough to scare all investors away from the equity market.
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. This is especially given the rising oil prices that have so far supported the economy and equity market, despite the seeming improvement in the fixed income yield which had remained at negative real rate of return due to the subsisting high inflation.
However, the strong and faster recovery may continue, depending on market forces, going forward, as propelled by Q1 earnings reports and expected march full year audited accounts.
The NGX’s index action and indicators are heading in the same direction on a low traded volume and mixed sentiments in the midst of rising yield in bond and TB.
Also, the current undervalued 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 in the new year.
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Ambrose Omordion
CRO|Investdata Consulting Ltd
ambrose.o@investdataonline.com
Tel: 08028164085, 08032055467
