Profit-taking, Repositioning Lingers As Investors Await Q2 Economic, Earnings Data

Market Update for the Week Ended June 11 and Outlook for June 15-19

It was another mixed trading and volatile week on the Nigerian Stock Exchange (NSE) as the composite All-Share index closed higher in the midst of dwindling sentiments, just as crude oil prices at the international market recorded the biggest drop to $36 from its three-month high of $41 in recent time due to fears of a resurgence in the Coronavirus (COVID-19) pandemic.

The benchmark index is seemingly struggling at the peak of the NSE’s bear market, after forming a V-shape of the two-month recovery to consolidate on a side-ways trending that signals a pullback at a strong resistance level. There has been a growing drumbeat that the market has come too far and fast, given the economic realities facing the domestic and global economies.

The 42% job loss according to the report by the National Bureau of Statistics (NBS), has triggered another round of fears about economic recovery and the troubling unemployment rate in the system, propelled by the virus, as oil price continues to oscillate in the face of increasing government borrowing and the consequent high cost of debt servicing. Analysts continue to lament the fact that the borrowing, before now, has not reflected on the nation’s economy, and indeed, the wellbeing Nigerians.

With the ongoing sectoral rotation trading pattern, sentiment is changing as noticed in the last two trading sessions of the week. We have seen profit taking in stocks across sectors that had rallied in the month of May as market players trade and invest cautiously at this point.

First tier banking stocks and other blue-chip equities are oscillating at their overbought region, signaling correction phase any moment from now. The sectors that had suffered losses now and those that will benefit from the COVID-19 driven economic downturn should be considered at this point.

This is especially as the government and the Central Bank of Nigeria (CBN) are disbursing intervention funds to boost activities in  healthcare sector, agriculture, oil sector, aviation and others to reduce the effect of the lockdown, while protecting jobs. Ahead of next week’s reopening of the nation’s airspace to flights, investors should look the way of healthcare stocks, aviation and their allied stocks.

 Movement Of NSEASI

It was a four-day trading week, owing to the declaration of Friday, June 12, as holiday to mark the nation’s democracy day.

The NSEASI opened the week under review on a positive note, gaining 0.93% on positive sentiments on Monday, which was sustained on Tuesday when the market closed 0.34% up on mixed sentiments. The index suffered a pullback by midweek when it lost 0.47% due to profit taking that extend to Thursday as the slipped 0.13% lower.

The index therefore recovered 0.67% at the end of the week from the previous week’s 1.00% loss, which kept the recovery move on motion despite the mixed sentiments.

Consequently, the benchmark index rose 166.37 basis points, after opening at 25,016.30bps, touching an intra-week high of 25,412.54bps from its low of 25,016.30bps on profit taking.

We note that the market is entering its distribution phrase of its cycle, a situation that calls for serious caution, because a sell down is underway ahead of the May inflation data. At the end of Thursday’s trading, the market closed above its opening figure at 25,182.67ps, compared to previous week’s close, remaining above the 25,000bps level.

Similarly, market capitalization was up by N87bn, closing at N13.14tr from previous weekend’s N13.05tr, representing a 0.67% value appreciation, just as the share price of BOC Gases was adjusted for 30 kobo dividend per share during the week.

Within the period, 12 companies released their scorecards, involving three 2019 audited results- Mutual Benefits Assurance, Daar Communication and Tripple Gee, while quarterly earnings were submitted by the boards of BUA Cement, NPF Microfinance, GSK, Berger Paints, Unity Bank, Tantalizer, Abbey Mortgage and Red Star Express respectively, with mixed performance.

It was a fabulous week for low cap stocks again, as investors reacted positively to corporate earnings and dividend news from them, following which they dominated the gainers table for the period as their qualification dates draw closer and favourable market sentiments. This reflected on market breadth, as advancers outnumbered decliners in the ratio of 34:31, just as the impetus behind the week’s performance remained relatively weak, despite the Money Flow Index reading 46.45bps, compared to 39.81bps in the previous week.

Technically, the NSE’s index action is side trending at resistance level in consolidation to signal a continuation or pullback on a weekly chart, low traded volume reflected the cautious buying mood of players.  Any up bar which closes in the middle or low as volume has fallen off, is a potential sign of weakness, despite the bullish MACD which has crossed over the signal line, while the index traded slightly above the 20-day moving average, within the bearish channel. Sell volume stood at 58%, while the money flow index climbed up at 46.45 point.

On a weekly time frame, Relative Strength Index has turned up, reading 49.85 just as momentum behind the market’s recovery remains strong, while profit taking continues ahead of the Q2 economic and earnings data and portfolio repositioning at a time of global economic reset and fears and an impending global recession.

The strength behind the NSE’s index movement on a daily and week chart have been weakened as  ADX reads  23.39 points from last week 24.97 points, on mixed sentiments as revealed by Investdata’s Sentiment Report for the week, showing 58% ‘sell’ volume and buy position of 42% with the transaction volume index at 0.72.

Mixed Sectoral Indices

Performance indexes across sectors were mixed with the NSE Insurance, Industrial Goods and Banking indices closing 3.69%, 2.24% and 0.46% higher respectively, while the NSE Oil/Gas and Consumer Goods index declined by 2.26% and 0.20% respectively.

Activities in terms of volume and value during the week were down by 25.48% and 58.39% respectively, as investors transacted 1.09 billion shares worth N9.80 billion from the previous week’s 1.47bn units valued at N23.55bn. The week’s volume was boosted by trades in financial services stocks, especially Mutual Benefits Assurance, Guaranty Trust Bank and FBN Holdings.

Neimeth Pharmaceuticals and Royal Exchange Assurance were the best performing stocks for the period, after gaining 45.20% and 20% respectively, closing at N2.57 and N0.24 per share on positive market sentiments. On the flip side, Japaul Oil and Redstart lost 23.08% and 22.73% respectively, closing at N0.20 per share and N21.25 per share on market forces and price adjustments for cash and bonus dividend.

Market Outlook

The market in two weeks has side-trended, while consolidation continues in the ongoing bear-market rally’s resistance level that signals an imminent pullback or correction as profit taking gains momentum ahead of the May Inflation data and Q2 earnings reporting season. The sector’s rotational wave will help investors to cash in on low cap stocks and sectors that have suffered huge losses before now. Already investors are looking the way of healthcare, Airline services providers, among sectors likely to be impacted positively in the much anticipated global and domestic economic reset.

Also, the possibility of continued funds inflow to the low priced stocks is high, due to the higher yields and upside potentials, considering the low rates on offer in the money and bond markets. In the meantime, investors should also look out for developments around the implementation of the CBN’s funding plan for small and medium scale businesses. 

Already, we notice that investors are taking position in healthcare and other defensive stocks likely to survive this meltdown, as seen in the increased trading in them, even as the global markets continue on the recovery path, with the gradual easing of the lockdown.

Also, do not forget to identify and play defensive stocks among the many fundamentally sound companies, as their share prices remained depressed, making them attractive for bargain hunting by market players. This has also resulted in significant improvements in Dividend Yields of stocks, even as we note the fact that fund managers who held cash before now, may have to rethink the strategy and go for value stocks with high upside potentials.

While discerning investors should take advantage of the current low stocks valuation to position for the medium to long-term, it is noteworthy that the Nigerian equity market is selling at a discount and therefore offers high upside potential.

Expect a likely bargain-hunting motive, supported by the positive performance, especially with many fundamentally sound stocks remaining underpriced, and the dividend yield of major blue-chips continuing to look attractive in recent weeks, we expect speculative trading to shape the market’s direction, despite the seeming mixed outlook.

To position for the short to long-term, investors should target fundamentally sound, dividend-paying stocks, for possible capital appreciation in the coming months. Also, traders and investors need to change their strategies, because of the NSE’s pricing methodology, the CBN directives, and their impact on the economy in the nearest future.

Meanwhile, the home study packs of our Invest 2020 Opportunities and Trade Ideas Summit, containing different Stocks for various investment objectives in 2020 and beyond, Mastering Earnings Season for Profitable Trading and Investing in any market situation/Cycle are available. To obtain your pack send ‘Yes’ or ‘Stock’ to 08028164085, 08032055467, 08111811223 now.

Ambrose Omordion

CRO|Investdata Consulting Ltd

Tel: 08028164085, 08032055467