Profit-taking May Persist Amidst Indecision Among Investors, Ahead Of Santa Claus, Year-end Rally

Market Update for December 3

Again, trading activities on Nigerian Stock Exchange (NSE), on Tuesday slowed down as the benchmark All-Share index recorded yet another negative outing due to continued profit-taking and mixed sentiments. Volume traded was lower, betraying the level of indecision among market players as they continue watching the capital wave dynamics.

Meanwhile, interest rates on the two-year and three-year FGN savings bonds rate dropped to 9.09% and 10.1% respectively, with the three-year rate hitting a three-year low (since March 2017), as the government takes advantage of the improving liquidity in the system. Investors, on their part, continue their search for investment window that offer higher returns, amidst negative real returns in its short-term debt securities market.

The continued crash in rates and fixed income yields is expected to drive investment in equity assets, considering the low valuation of many stocks and prevailing high yields in the stock market, given that interest rates in government T-Bills at the last auction dropped to 6.50%, 7.23%, and 8.37% in the 91-day, 182-day and 364-day segments respectively. These are the lowest since January 6, 2016, while the average discount rate on the bills at the secondary market declined to 6.86% last week. Analysts see this as one impact of the unconventional policy initiatives of the Central Bank of Nigeria (CBN), including the recent directive restricting participation in the OMO market to foreign investors and the banks. This has forced other market players such as pension funds administrators, insurance companies, fund managers and individuals to look elsewhere for investment windows for their funds.

Meanwhile, Tuesday’s trading started on the upside in the morning and oscillated between the mid-morning and afternoon on demand for stocks and profit booking which pulled down the composite index to an intraday low of 26,833.39 basis points, from its high of 27,030.98bps. Thereafter, the index retraced up to close the session lower at 26,944.32bps on mixed sentiments.

Tuesday’s market technicals were negative and weak as volume traded came lower than the previous day, with a negative breadth and mixed sentiments prevailing as revealed by Investdata’s sentiment report of a 56% ‘buy’ volume and 44% sell position. The day’s total transaction volume index stood at 0.58, with a stronger impetus behind the day’s performance as shown by Money Flow Index at 62.77 points, from the previous 57.07bps. This is an indication that funds entered some stocks, despite the down market.

Index and Market Caps

At the end of Tuesday’s trading, the All-Share Index lost 46.27bps, closing at 26,944.32bps from its 26,990.59bps opening, representing a 0.17% decline, just as market capitalization shed N22.33bn at N13tr, from the opening value of N13.03tr, which also represented a 0.17% deprecation in value.

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The session’s downturn followed profit booking and sell down in stocks like MTN Nigeria, Stanbic IBTC, Lafarge Africa, Fidelity Bank, Wema Bank, May/Baker, and Dangote Sugar, which impacted negatively on the NSE’s Year-to-Date loss, increasing it to 14.27%. Market capitalization gain for the period dropped to N1.21tr, representing a 12.94% growth from the year’s opening value of N11.72tr.

Mixed Sector Indices

The sectoral performance indexes were largely bullish, except for the NSE Consumer Goods and insurance indexes that closed 0.64% and 0.25% down respectively, followed by the NSE Banking and Industrial goods indexes, which lost 0.38% and 0.05% apiece. The NSE Oil/Gas index, however, led the advancers’ side, chalking 0.78%.

Market breadth remained negative as decliners outpaced advancers in the ratio of 19:13, while market transactions were mixed with volume declining by 23.33% to 189.01m shares, from the previous day’s 246.51m units, while value was up by 18.33% to N2.88bn from Monday’s N2.44bn. This volume was boosted by transactions in Access Bank, GTBank, Zenith Bank, UBA and Fidelity Bank.

The best-performing stocks for the day were Okomu Oil and Etranzact, which topped the advancers table, chalking 9.87% and 9.66% respectively to close at N54.55 and N2.61 each respectively, on the back of low price attractions and market forces. On the flip side, Ikeja Hotel and Champion Brewery lost 9.73% and 8.82% respectively, closing at N0.20 and N7.30 on profit-taking and market forces

Market Outlook

We expect this mixed performance to continue at this time, given the profit-taking and level of indecision among market players ahead of the usual Santa Claus and year-end rally as capital flow and repositioning in value stocks will persist. There is also the changing sentiment in the expectation of improved liquidity and positive economic indices.

The current undervalued state of the market offers investors opportunities to position for short and medium-to-long-term views. We expect that investors would target fundamentally sound and dividend-paying stocks for possible capital appreciation as the year draws down.

Also, traders and investors need to change their trading strategies due to NSE’s pricing methodology, CBN directives and its impact on the economy in the nearest future.

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