Market Update for March 3
Midweek was yet another red day on the Nigerian Stock Exchange (NSE) as sellers dominated trade, thereby extending the downtrend for the second consecutive sessions with the market paying seemingly scant attention to the impressive corporate earnings and high payouts. Instead, the share prices of high and medium cap stocks that had announced their 2020 full-year financials are declining in price, despite the high payout and yields.
This shows that the market is faced with a purely liquidity and sentiment problem as capital continues to flow from the equity space to fixed income amidst the earnings season. Nevertheless, this current market mood of lingering price corrections creates buy opportunities, especially for dividend or income investors. It is important to know that the situation may not be unconnected with the need by investors to rebalance their portfolios, moving towards the money market, because of its seeming safety. That notwithstanding, there are many others not comfortable with the volatility in the stock market who are migrating also, despite the fact that it offers higher yields than the prevailing rates and yields in the money and bond market in the short to medium term. However, for those not risk averse, armed with a fare knowledge of how to navigate the market, there can be no better time to lock in for juicy returns than now.
With the second down market after breaking down the 40,000 mark, should this be about a potential correction, or is the market still holding its main support?
To answer this, we will say, this is the time to go defensive and look for sectors that can hold over major support, using technical analysis and understanding the stage or cycle of the economy. This will help you know sectors and individual stocks that will benefit from the seeming early recovery or expansion of the economy now that the nation has exited recession. This and more will be discussed during the oncoming Master Class on “How to create consistent cashflow in any market cycle.”
In the midst of these pullbacks and correction, Investdata is believes that playing dividend stocks on the NSE will reduce investment risks around the market at this time, thereby following the smart money and billionaire investors in the market today, because they want to maintain their life style.
In that way, should the full-year earnings reports and dividend news fail to impact and change the current trend, a big rotation in sector trends would also guide you, going into the future. This is especially given that the NSE’s All-Share index action is trading below its 50-Day Moving Average on a daily time frame, which suggests that all is not well with the market at this point.
Meanwhile, Wednesday’s trading opened slightly on the downside and it was sustained, despite oscillating for the rest of the session on selloffs among the bellwether stocks and buying interests in dividend stocks that had announced their payout. This situation pushed the NSE’s index to an intraday low of 39,459.18 basis points from its 39,722.41bps high, before closing below its opening figure at 39,522.06bps on a low traded volume.
Midweek’s market technicals were negative and weak, with volume traded higher than previous day’s in the midst of negative breadth and sentiment as revealed by Investdata’s Sentiments Report showing 24% ‘buy’ volume and 76% ‘sell’ position. Total transaction volume index stood at 0.52 points, just as the momentum behind the day’s performance remained weak, with Money Flow Index looking up slightly at 32.37pts, from the previous day’s 26.62pts, indicating funds entered the market, despite the downtrend.
Index and Market Caps
At the end of day trading, the composite index NSES All-Share Index lost 175.56bps, closing at 39,522.06bps after opening at 39,697.67bps, representing a 0.44% drop. Similarly, market capitalization fell by N91.85bn, closing at N20.68tr, from previous day’s N20.77tr which also represented 0.59% depreciation in value.
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Wednesday’s downtrend was impacted by selloffs and profit taking in bellwether stocks like MTNN, Lafarge Africa, Dangote Sugar, United Capital, Union Bank of Nigeria, Oando, UACN, Access Bank, and Zenith Bank, among others. This impacted negatively on Year-To-Date loss which increased to 1.86%, just as the drop in market capitalization stood at N378.62bn, or 1.80% below its opening value.
Mixed Sector Indices
Performance indexes across various sectors closed mixed, except for the NSE Oil/Gas that closed 5.02% higher, while the NSE Insurance index led the decliners, after shedding 0.86%, followed by Consumer and Industrial Goods with 0.45% and 0.41%respectively lower.
Market breadth remained negative, as decliners outpaced advancers in the ratio of 30:16; just as activities in volume and value terms were mixed, with volume traded inching up by 9.23% as investors exchanged 244.34m shares, down from the previous day’s 222.57m units. Transaction value however was down by 23.38% at N4.13bn, compared to the previous day’s N5.39bn. Volume was boosted by trades in Zenith Bank, Guaranty Trust Bank United Capital, Mansard Insurance and FBNH
Seplat and AIICO were the best performing stocks gaining 10% and 5.22%, and closing at N583 and N1.21 per share respectively on dividend news and market forces. On the flip side, Japaul Gold and NEM Insurance lost 10% and 9.91%, closing at N0.54 and N1.91 per share, on profit taking and market forces
We expect the mixed trend and momentum to continue in the face of rising Treasury Bills yields, oil prices and high dividend yields during this earnings season, as the pullbacks give bargain hunters another opportunity to reposition while more companies release their full-year numbers to 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 expected 2020 full earnings reports, until the next MPC meeting in March.
The NSE’s index action and indicators are in divergence on a low traded volume and positive buying sentiments.
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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