Rebalancing, Profit-taking Ahead, Amidst Positive Sentiments For Q2 Reports

Market Update for August 06

Equity prices closed higher on the Nigerian Stock Exchange (NSE) on Thursday as the benchmark All-Share index extended its five sessions of back-to-back gains on demand for undervalued high cap stocks. Other factors included expectation of dividends and market forces that continue to suppor the recent rally, reflecting the better-than-expected numbers from various companies, despite the generally mixed earnings reporting season.

The market again seem to have discounted the policy summersaults and lack of economic direction as the government and its economic managers continue to wobble on policy formulations and statements that reveal a clear lack of coordination and vision among the different facets of policy making by government.

One of the major drivers of inflation in the country today is the pump price of fuel, which in the last four months have been adjusted up and down before the latest price of N150 per liter of premium motor spirit, the highest in the history of Nigeria. It is painful that the Muhammadu Buhari administration has since assuming office in 2015 for the first four-year term has been unable to fix the nation’s oil refineries in Warri, Port-Harcourt and Kaduna, which could have helped stabilize the price of fuel, rather than spending billions of scarce foreign exchange on importation of the prime product, resulting in imported inflation.

Worse still, this is happening at a time the same government and the Central Bank of Nigeria (CBN) are injecting over N2.3tr into the economy to mitigate the effect of Coronavirus outbreak on the system. The removal of fuel subsidy according to the government is to stem the spate of high-level corruption, single exchange rate and expansion of tax net are yet to give a direction as well as where we are going as nation, due to the lack of focus and coordination to chart a new course in this economic reset.  How will you curtail inflation, unemployment, poverty and insecurity, when there is a lack of synergy among the policy makers? 

Thursday’s trading started marginally on the upside and fluctuated during the session on position taking ahead of dividend declaration and profit booking from the recent rally. This pushed the composite index to an intra-day high of 24,930.34 basis points, from its low of 24,882.04bps before finishing higher than it opened at 24,930.34bps.

Market technicals for the session were positive and mixed with volume traded lower than the previous day’s in the midst of positive breadth and buying sentiment.

Index and Market Caps

At the end of Thursday’s trading, the NSEASI rose slightly by 48.30bps gain at 24,930.34bps from the 24,882.04bps it opened, representing a 0.19% rise, just as market capitalization inched N25.2bn at N13.01tr from its opening value of N12.98tr, representing a 0.19% rise.

If you are yet to sign up for Investdata’s Buy and Sell signal setup, don’t delay. We have just added another risk management feature and six categories of stocks to see you through in this changing market dynamics and economic uncertainties. These stocks are with double potentials to rally and protect your funds considering their current market prices.

To become a member, send ‘YES’ or ‘STOCKS’ to the phone numbers below. Take advantage of this service to buy right and sell right at this current market oscillation and earnings reporting season for portfolio realignment and positioning as we await an economic reform policy to stimulate and re-track the economy again.

The day’s advancement was driven by value gain by Seplat, MTNN, Guaranty Trust Bank, Stanbic IBTC, Zenith Bank, UBA, Ecoban Transnational Incorporated, Guinness, and NASCON Allied. This impacted mildly on the NSE’s benchmark index, reducing the Year-To-Date loss to 7.12%, while market capitalization YTD remained positive, at N48.51bn, representing a 2.08% increase over the year’s opening level.

Mixed Sector indices                                                                     

Performance indices across the sectors were mixed as the NSEOil/Gas, Banking and Consumer Goods, garnered 4.36%, 0.14% and 0.09% respectively, while the Industrial Goods and Insurance indexes closed shed 0.67% and 0.02% respectively. 

Market breadth remained positive, as advancers outnumbered decliners in the ratio of 20:11, while transactions in volume and value terms were down by 54.67% and 45.21% respectively after investors exchanged 173.74m shares worth N2.13bn, compared to the previous day’s 383.29m units valued at N3.89bn. Volume was boosted by trades in FBN Holdings, Guaranty Trust Bank, Custodian Investment, Transcorp and Lafarge Africa.

Seplat and Fidson Healthcare were the best performing stocks during the session after gaining 9.03% and 8.57% respectively, closing at N350 and N3.42 per share on low price attraction and impressive Q2 numbers respectively. On the flip side, UBN and Learn Africa lost 7.41% and 6.93% respectively to close at N5.00 and N0.94 per share respectively on selloffs.

Market Outlook

Being the last trading day of the bullish week, we expect the mixed trend and  profit taking by traders in the midst of positive sentiments for Q2 numbers  and  dividend expectations as portfolio rebalancing continued on the strength of half-year earnings already released. Also, the March/May/ June full-year accounts and interim dividend paying banks results are expected to hit the market.

Also, there is the expected impact of positive news of a Coronavirus vaccine and CBN policies on the economy, even as investors are stilled worried about inconsistent government policies which have continued to dampen confidence.

This is likely to support volatility, thereby creating new entering opportunities. Money flow index continues to look up at 41.58 despite flowing from one sector to the other, seeking value in terms of low prices with high upside potentials.

With the earnings reporting season gradually coming to end, there are opportunities still available as sectoral rotation continues, while sectors that have suffered oversold so far offer attractive risk-reward buy-opportunities and outlook for considerable short, medium and long term investment.

For immediate liquidity or cash, we advise that you trade low priced stocks with serious caution to avoid being trapped. However, the market’s high dividend yield continues to attract buying interests, as few audited and unaudited corporate earnings will hit the market, going forward. This is despite the likely continuation of selloffs. Investors are buying to increase their positions in undervalued stocks on H1 numbers. It is also against the backdrop of the fact that the capital wave in the financial markets may persist in the midst of relatively low-interest rates in the money market, high inflation, and unstable economic outlook for 2020.

Again, the current undervalued state of the market offers 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 going forward. 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.

NB:The home study packs and videos that will help you prepare and take advantage of the current happening in the market and economy are available at Investdata. How to invest or trade profitably in a changing market dynamics and recession. Mastering earnings season for profitable investment To obtain your pack send ‘Yes’ or ‘Stock’ to 08028164085,08032055467, 08111811223 now.

 Ambrose Omordion

CRO|Investdata Consulting Ltd

Tel: 08028164085, 08032055467