Market Update for May 26
Midweek’s trading activities on the Nigerian Exchange were mixed and volatile, as the composite index continued its downward trend on low traded volume and positive market breadth that signals an end to the bearish cycle. This is coming on the back of Tuesday’s decision of the Central Bank of Nigeria (CBN) Monetary Policy Committee to leave lending and other rates unchanged, ahead of the Q2 earnings season.
The current divergence in corporate earnings and falling share prices, as witnessed Wednesday reveals the potential of the equity market to create wealth for discerning investors who take advantage of these pullbacks to position in undervalued stocks with high possibility of beating their earnings forecasts. When earnings are going up and prices are coming down in a recovery market, such trend does not last before correction set in.
Despite the latest Naira depreciation at the black market, the ongoing reform as seen in the decision of the CBN to adopt the Investors and Exporters’ window rate for exchange in the foreign exchange market is a welcome development. This follows its ability to create the much expected convergence in rates and will support FX availability, while boosting confidence, in addition to supporting the stability needed to attract foreign investment inflows. Despite the resultant Naira devaluation along the line, the latest CBN move is a plus for the stock market.
The changing price pattern and trading environment call for a change in investor perception and trading strategies to stay ahead of the market, thereby ensuring that you are among the few who make money from equities’ trading, which is possible through regular learning. This is the advantage Investdata’s Comprehensive Stock Market trading videos and literature provides, as it covers fundamental and technical analyses that help you make effective and profitable trades.
Investors should, therefore, wait to confirm the new trend by focusing on the sectors with strong potential to grow their earnings performance and that have high upside price rally outlook. Here, investors should target companies with earnings growth, quality and value that can match Investdata’s Earnings Gauges.
Meanwhile, Wednesday’s trading opened on the upside but oscillated between midday and afternoon on selloffs and position taking that pulled NGX index to an intraday low of 38,226.39 basis points, from its highs of 38,271.94bps. Thereafter, the benchmark index closed below the day’s opening level at 38,233.68bps on a low traded volume.
Market technicals were weak and mixed, as volume traded was lower than previous day’s in the midst of breadth that favours the bulls on a negative sentiment as revealed by Investdata’s Sentiments Report showing 85% ‘sell’ volume and 15% buy position. Total transaction volume index stood at 0.74 points, just as the impetus behind the day’s performance was relatively weak, as Money Flow Index looked down, reading 28.39pts, from the previous day’s 38.32pts, indicating that funds left the market.
Index and Market Caps
At the end of midweek’s trading, the NGX All-Share Index shed 23.08bps, closing at 38,256.76bps from an opening figure of 38,2bps as representing a 0.06% drop, just as market capitalization lost N16.07bn, closing at N19.95tr, also representing a 0.06% depreciation in value.
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Midweek’s dip resulted from persistent profit taking and selloffs in Flour Mills, NPF Microfinance, Guaranty Trust Bank, Zenith Bank, FBNH, UBA, Fidelity Bank, Wema Bank, Transcorp and Sterling Bank, among others. This impacted negatively on Year-To-Date loss, increasing it to 5.06%, while the drop in market capitalization YTD increased to N1.65tr, representing a 6.42% drop below its opening value for the year.
Mixed Sector Indices
Performance indexes across sectors were mixed, as NGX Insurance closed 1.17% higher, while NGX Banking led the decliners after shedding 0.44%, followed by Consumer goods with 0.08% lower.
Market breadth turned positive, as advancers outnumbered decliners in the ratio of 20:14; while transactions in volume and value terms were down, as players exchanged to 203.09M shares worth N1.82bn, as against previous day’s 250.2m units valued at N1.55bn. Volume was driven by trades in Fidelity Bank, Zenith Bank, Mutual Benefits, Sovereign Trust Insurance and Transcorp.
The best performing stocks for the session were John Holt and Vitafoam which gained 9.68% and 9.19%, closing at N0.68 and N10.10 per share respectively on market forces and improved earnings. On the flipside, FTN Cocoa and NPF Microfinance lost 7.32% and 5.62% respectively, closing at N0.38 and N1.68 per share, on selloffs and profit taking.
Market Outlook
We expect a reversal as selloffs and profit taking amid the mixed sentiment and positive breadth in the face of the global economy recovery across and the high yields in the fixed income market. We also expect the ongoing vaccination to support global and domestic economic recovery that will support the market and give direction.
The banking sector and others remains attractive on the back of the prevailing low prices, despite the Q1 mixed numbers.
Also, the market just started a new downtrend as it trades below the 14 and 20-Day Moving Average. Note that the market may discount the political and insecurity challenges headlines, ahead of half-year earnings reports.
However, the pullbacks offer bargain hunters and income investors fresh opportunities to reposition in high dividend yields and undervalued stocks, while looking out for quarterly numbers that would 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 Q1 earnings reports and expected march full year audited accounts.
The NGX’s index action and indicators are heading in the same direction on a low traded volume and mixed sentiments in the midst of rising yield in bond and TB.
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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Ambrose Omordion
CRO|Investdata Consulting Ltd
ambrose.o@investdataonline.com
Tel: 08028164085, 08032055467
