NSEASI Recovers Mildly, As Investors Reposition Ahead Of Q3 Earnings Season
Market Update for September 10
Equity prices closed higher Thursday on the Nigerian Stock Exchange (NSE) as banking stocks rebounded, after their three trading sessions of selloffs and profit taking, halting previous declines by the benchmark All-Share index on improved buying sentiment in medium and high cap stocks.
This, expectedly, boosted the major indexes on an above-average traded volume and positive market breadth, despite the fact that oil prices extended the bearish mood at the international markets.
Discerning investors and traders are cashing in on the opportunities expected from the hike electricity tariff and the pump price of fuel by the Federal Government, who many accuse of offering palliatives or stimulus packages with one hand, and while it is yet to reach the target beneficiaries, collecting same by way of the price hikes expected to bloat prices of goods and services across the country. Those investors and traders are taking position in sectors they perceive would likely to benefit from the hikes directly or indirectly, especially utility and petroleum marketing companies. One way the hike in fuel price could advantageous, they note, is the fact that it will reduce the mountain of non-performing loans in the banking industry linked to petroleum products marketers and power generation and distribution companies.
We notice improved activities in Transnational Corporation of Nigeria (Transcorp) and Oando Plc, two companies involved in the energy value chain, especially as the price hike is likely to boost the profit level of these companies and their peers. Already, earnings forecasts from the oil marketing companies are giving insights into what investors should expect, going forward.
Meanwhile, it is noteworthy that the new wave of earnings forecasts in the market is a welcome development, as it would further guide investors when taking investment decisions, especially amidst the rising economic uncertainty.
Meanwhile, Thursday’s session started on the downside, but rebounded in the midmorning and oscillated for the rest of the session on position taking in banking and manufacturing stocks, which pushed the NSE index to an intraday high of 25,540.91bps, from its low of 25,403.33bps. Thereafter, it closed above its opening figure at 25,520.97bps.
Technically, at the end of Thursday trading, there was a reversal sign in trend which we would be confirmed in the next trading session, as distribution phase of the correction was halted. Market technicals for the session were positive and mixed, as traded volume was lower than the previous session in the midst of breadth that favoured the bulls on positive sentiments, as revealed by Investdata’s Sentiment Report showing 86% ‘buy’ volume and sell position of 14%. Total transaction volume index stood at 1.04points, just as impetus behind the day’s performance remained relatively strong, with Money Flow Index reading 72.73points, from the previous day’s 72.90points, an indication that funds entering the market are slowing down despite the up market.
Index and Market Caps
At the close of Thursday trading, the composite NSEASI gained 96.06 bps, closing at 25,520.91bps, after opening at 25,424.91bps, representing 0.38% rise, just as market capitalization rose by N50.12bn to N13.31tr, after opening at N13.26tr, also representing a 0.38% appreciation in value.
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The upturn was due to price appreciation in MTNN, Guaranty Trust Bank, Zenith Bank, Access Bank, UBA, ETI, FBNH, ETERNA, Oando, NB, and Lafarge Africa, among others, impacting positively on the index. It also reduced Year-To-Date loss to 4.92%, while market capitalization YTD gain inched to N355.55bn, representing 2.74% above the year’s opening value.
Mixed Sector Indices
The sectorial performance indexes were bullish, except for the NSE Insurance and Oil/Gas that closed 1.66% and 1.28% lower respectively, while the NSE Banking index led the advancers after gaining 2.28%, ahead of the consumer and industrial goods index, which crawled 0.08% and 0.02% up respectively.
Market breadth was positive as advancers outnumbered advancers in the ratio of 23:7, with market activities in term of volume and value dropping by 12.31% and 42.51% respectively, as investors exchanged 236.43m shares worth N1.65bn, as against the previous day 269.63m units valued at N2.87bn. This was driven by trades in Zenith Bank, Fidelity Bank, Mutual Benefits, Wema Bank and FBNH.
Eterna and C & I Leasing were the best performing stocks during the session, gaining 9.7% and 8.5% respectively to close at N2.49 and N3.85per share on market sentiment and low price attraction. On the flip side, ABC Transport and Cornerstone Insurance lost 7.7% and 7.6% respectively, closing at N0.36 and N0.61 respectively on market forces and profit taking.
We expect a mixed trend on profit taking ahead of qualification and markdown dates of dividend paying banks as investors reposition their portfolios, looking forward to market corrections ahead of the Q3 earnings season. Recall that banks have kept the market above its 50-day moving average on a daily time frame.
The mixed intraday movement is likely to persist as the month of September progresses in the midst of profit booking and negative macroeconomic indices. This is also against the backdrop of the fact that the capital wave in the financial market may persist in the midst of relatively low-interest rates in the money market, high inflation, negative Q2 GDP of 6.1% and unstable economic outlook for 2020 as government and its economic managers are going front and back with mismatch polices and action.
Also, investors and traders are positioning amidst the changing sentiments in the hope of improved liquidity and positive economic indices which may reverse the current trend.
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.
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