Recovery, Mixed Indicators Likely In July, As Earnings, Data Confirm Real State Of Economy
Market Update for the Week Ended July 2 and Outlook for July 5-9
The trading week that ushered in third quarter and earnings reporting season month on the Nigerian Stock Exchange had a mixed trend and closed the period higher on a less-than-average traded volume, thereby halting two consecutive weeks of bear transition, as players rebalanced their portfolios for the just ended quarter and ahead of earnings expectations.
The continued notification of closed period and board meetings by directors of quoted companies for approval of their half-year financials seems to have triggered buying interests across sectors, including value and growth stocks of dividend paying equities. We note also that the March year-end accounts have given insights into what investors should expect from the larger market, going forward. The summary is that some of these companies grew their payout while some had a dividend cut to reflect their performance for the financial year ended March 31, 2021. Just as medium and low priced stocks like Vitafoam, Berger Paints, Cutix, Ikeja Hotel and Learn Africa made new 52-week high at the end of Friday.
The global economy and markets remain mixed, despite the vaccination driven economic recovery across climates, even as the World Bank has upgraded its economic growth outlook based on the ongoing vaccination, reopening of economies, and government polices at different levels.
Back home, the seeming economic recovery and mixed indicators are likely to continue in the new month and quarter, while we expect corporate earnings, economic data and developments to confirm the real state of the nation’s economy as implementation of the 2021 national budget continues,with supplementary budget over N900 billion underway. These will be helped by the CBN’s continued intervention in critical sectors to boost productivity needed to create employment and support recovery.
In the new month, we expect the release of June consumer price index (CPI) by the National Bureau of Statistics (NBS) that would likely show reversal in inflation trend; just as the CBN’s Purchasing Managers Index (PMI) for June is equally expected. The nation’s GDP is still on a weak recovery mode to reflect the true state of the economy.
As corporate actions and earnings reporting season have been extended to July and August for December, March, April and May year-end accounts, the fundamentals of these earnings and dividend declaration will support the ongoing positive sentiment in market. Also, we note that some high and low priced stocks have this month as their qualification and mark down dates, a situation that will keep the market oscillating, while at the same supporting recovery.
Traders and investors who understand the importance of combining fundaments and technical analysis in making investment decisions in the stock market should take this opportunity to position in some sectors for medium and short-term gains, especially the banking, telecom, Industrial, agribusiness and consumer goods after a careful study of economic recovery and sectors that had supported the weak recovery which is likely to influence the performance of the companies in that industry and the market.
What to expect in July and August?
- Release of morequarterly earnings and dividend payment. These earnings from listed companies may strengthen market fundamentals in the quarter.
- Continuation of oscillating trend of equity prices as a result of repositioning of portfolio along the line of positive numbers and profit taking. Also the second half of this year will likely be dominated by positive sentiment.
- Market outlook for July and rest of the quarter remain mixed and dicey. In the Nigerian market, the month of July has closed negatively in 5 times and positive two times over the past seven years. But there are the changing price patterns and trading environment, coupled with the recovery oil price that is trading above $75 per barrel in the global market and the CBN intervening in the FX market to ensure stability.
- The sustained low valuation in the market may trigger high demand for stocks as players realign their portfolios. However, there is need to invest wisely, using volume, price action and sentiment when taking decisions as a trader.
- Managing risks, trades and protecting capital at this point is very important, so you will determine when to buy or sell, by watching the stocks and the market, using technical analysis. Look for investdata daily sentiment timing report and home study video packs
- Let numbers released by the companies guide your decision and time to stay in that position.
NSEASI WEEKLY CHART MOVEMENT
The Zigzag chart pattern formation and double bottom of the NGX Index action supports a continuation of trend and reversal, depending on market forces in this new week being the first full trading week of the new month and quarter. The candlestick is yet to give any signal on a weekly chart but new uptrend on a daily time frame.
Bullish Sectoral Indices
Performance indexes across the sectors were bullish, except for the NGX Oil/Gas that recorded a decline of 1.05%, while the NGX Consumer Goods led the advancers after gaining 5.14%, followed by Industrial Goods, Insurance and Banking indexes by 2.10%, 2.04% and 1.34% respectively,
Activates in volume and value terms were up slightly as investors exchanged 1.02bn shares worth N14.15bn, compared to the previous week’s 1.01bn units valued at N10.33bn, with volume driven by trades in Financial Services, Consumer goods and ICT industry, particularly GTCO, WemaBank, Zenith Bank, Transcrop and MTNN.
Ikeja Hotel and Linkage Assurance were the best performing stocks for the week after gaining 60% and 30.77% respectively, closing at N1.60 and N0.85 per share on market forces and half year earnings expectations. On the other hand, BOC Gases and Regency Assurance lost 18.96% and 14.29% respectively, at N8.55 and N0.42per share, on sellofsf and profit taking.
Market Outlook
We expect a mixed performance on profit taking, bargain hunting and accumulation of dividend paying stocks as portfolio readjustments on the recent pullback as all eyes are on Q2 corporate earnings, in the face of rising fixed income market yields.
Any breakout at this point offers new entry opportunities for traders and investors to reposition in value-laden underpriced growth stocks, while companies with March year-end accounts release their audited full-year numbers to support recovery. This is based on the fact that the rise in 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 ahead of interim dividend announcement. This is especially given that despite the seeming improvements, fixed income yield continues to offer negative real rate of return due to the galloping inflation.
However, the strong and faster recovery may continue, depending on market forces, going forward, as propelled by expected Q2 earnings reports, until the next MPC meeting in July.
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Ambrose Omordion
CRO|Investdata Consulting Ltd
ambrose.o@investdataonline.com
Tel: 08028164085, 08179547605
