Sectorial Indexes Close Green, Attract Investors, As Stocks Establish Strong Recovery Patterns

Market Update for December 16

Equity prices closed higher on the Nigerian Stock Exchange (NSE) on Monday as its composite All Share index closed north on increased demand for high cap stocks, ahead of expected major economic reports, especially the November inflation data from the National Bureau of Statistics (NBS). There was also the gradual inflow of funds into the equity space after the 91-day Treasury Bills rate crashed further to 5%.

It is clear that smart pension fund managers are already taking position ahead of the Santa Claus and year-end rally as fixed income market is entering its distribution stage.

Research has shown that Nigerian Pension Funds Administrators that had invested in the stock market before the active fixed income market and bull-run in that segment created wealth for contributors to top the performance chart. Nonetheless, there are some that continue to show apathy towards equities while seeking to protect their capital.

Also, the U.S Feds continue to signal rates cut, after injecting funds into the system for year-end activities. We expect some of the funds to flow to emerging and Fortier markets.

With the expected assent of the President Muhammadu Buhari to the recently passed 2020 budget on Tuesday, December 17, successfully changing the nation’s budget cycle to the fiscal year’s calendar for the first time in the history of Nigeria’s fourth republic. We, therefore, expect that the government will hit the ground running as per the implementation and disbursement of funds early in 2020. This will change a whole lot of activities and expectations in 2020.

Other factors expected to playout for the good of the economy, is the compliance by banks with the 65% Loan to Deposit Ratio by December 31, thereby ensuring more liquidity available to the system. This will eventually trickle down to the market, just as companies will have more funds to sustain and expand their operations, a situation that would impact positively on the economy, considering the low-interest rate regime which will support their share prices.

The recent index action and pattern reveals that the market’s recovery will not be overnight, but a gradual process as factors in favour of the market will increase in the new year.  These moves are pointers the fact that traders and investors are taking the position, as shown in all the sectorial indexes closing green to start the new week. Also important is the fact that many stocks have established a strong recovery pattern that should attract players to them individually, even as the market is getting set for a recovery move.

Meanwhile, Monday’s trading started on the upside, and the trend was sustained throughout the session on positive sentiments and buying interests in high and low cap stocks, pushing the All-Share index to an intraday high of 26,695.18 basis points, from its low of 26,521.38ps. Thereafter, it closed the session at 26,595.18bps on a less than average traded volume.

Market technicals for the session were positive as volume traded was higher than the previous session, in the midst of positive breadth and high buying pressure, as revealed by Investdata’s sentiment report of 100% ‘buy’ volume and 0% sell position. The day’s total transaction volume index stood at 0.58, with momentum behind the day’s performance staying strong, while Money Flow Index read 53.22 points, from the previous 46.66bps. This is an indication that funds entered some stocks and the general market.

Index and Market Caps

At the close of Monday’s trading, the benchmark ASI gained 158.97bps, closing at 26,695.18bps from the 26,536.21bps, representing 0.60% growth, just as market capitalization went up by N76.73BN to close at N12.88tr, from an opening value of N12.81tr, which also represented a 0.60%  value gain.

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The session’s upturn was impacted by the demand for stocks like Dangote Cement, Guaranty Trust Bank, Access Bank, UBA, Guinness, PZ, ETI, Oando, Wapco, and Wema Bank, which impacted positively on the NSE’s Year-to-Date loss, which reduced to 15.07%. Market capitalization YTD gain inched up slightly to N1.16tr, representing a 9.93% growth from the year’s opening value of N11.72tr.

Bullish Sector Indices

All sectoral performance indexes closed green, as NSE Banking index led the advancers, after chalking 1.64%, followed by the Industrial goods Index’s 0.95%, just as the NSE consumer goods, insurance, and Oil/Gas inched up by 0.40%, 0.31%, and 0.09% respectively.

Market breadth for the day turned positive as advancers outnumbered decliners in the ratio of 17:8, while market activities were up in volume and value traded by 9.77% and 43.21% respectively to 170.52m shares worth N2.05bn, from the previous day’s 155.35m units valued at N1.43bn.

This volume was driven by Access Bank, UBA, Zenith Bank, Guaranty Trust Bank and Transcorp Plc.

Guinness and PZ were the best-performing stocks for the day, after chalking 9.83% and 9.52% respectively to close at N32.40 and N5.75 each respectively, on low price attraction and market forces. On the flip side, Cornerstone insurance and Neimeth Pharm lost 9.09% each, closing at N0.60 and N0.60 on profit-taking.

Market Outlook

We expect a sustained mixed performance amidst profit-taking, as investors take advantage of low prices to position, ahead of the usual Santa Claus and year-end rally as capital flow and repositioning in value stocks continue. There is also the changing sentiment in the expectation of improved liquidity and positive economic indices.  As inflation report for November is expected today.

Again, the current undervalued state of the market offers investors opportunities to position for short and medium-to-long-term horizons. We expect that investors would target fundamentally sound and dividend-paying stocks for possible capital appreciation as the year draws down to usher in 2020, just as was noted in the 10 golden stocks and trading ideas for 2020 discussed last weekend during the Investdata  2020 Traders & Investors Summit.

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

Meanwhile, we appreciate all that made Invest 2020 Traders and Investors Summit a success. The home study pack will be available next week. To book for the pack, Send Yes or Stock to 08028164085, 08032055467, 08111811223 now.

 Ambrose Omordion

CRO|Investdata Consulting Ltd

Tel: 08028164085, 08032055467