Market Update for May 25
Nigeria’s equity market continued to trade at a cheaper valuation on Tuesday, resulting to a record seventh successive day of losses on mixed sentiments and improved traded volume reflecting the entrance of bargain hunters and smart money now accumulating their positions ahead of markup.
The ongoing divergence between corporate earnings and falling equity prices on profit taking and others, will soon come to an end as March year end audited accounts start rolling in ahead of players positioning for half year interim dividend and earnings season.
The outcome of the latest MPC meeting that ended on Tuesday will make the market breathe out, since every investment or trade is against expectations. The retaining of monetary policy instruments unchanged is given that the nation’s economy is in a state of stagflation, given the weak GDP growth of 0.51% at the end of the first quarter 2021, and a seeming slide in inflation. Also, to follow the global monetary policy trend, expecting to sustain economic recovery on the back of development around the vaccination for the coronavirus pandemic and interventions across all levels of government to support growth.
The ongoing reform in the foreign exchange market is a welcome development, as the Central Bank of Nigeria (CBN) adopts the investors and exporters’ window rate for exchange, a move that will create the much expected convergence in rates. This is expected to support FX availability and boost confidence, while also supporting stability that will attract foreign investment inflow. 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 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.
Market players 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, Tuesday’s trading started slightly on the upside and oscillated on indecision among players ahead of MPC briefing, as profit taking and positioning continued among the large and medium cap stocks that pulled the composite index to an intraday low of 38,246.33 basis points, from its highs of 38,288.39bps. Thereafter, the benchmark index closed below the day’s opening level at 38,256.76bps on a low traded volume.
Market technicals were weak and mixed, as volume traded was higher than previous day’s in the midst of negative breadth and mixed sentiment as revealed by Investdata’s Sentiments Report showing 75% ‘sell’ volume and 25% buy position. Total transaction volume index stood at 0.92 points, just as momentum behind the day’s performance was relatively weak, as Money Flow Index looked down, reading 38.32pts, from the previous day’s 46.66pts, indicating that funds left the market.
Index and Market Caps
The benchmark All-Share index, at the end the day’s trading, shed 30.82bps, closing at 38,256.76bps from an opening figure of 38,287.58bps as representing a 0.08% drop, just as market capitalization lost N16.07bn, closing at N19.95tr, also representing a 0.08% depreciation in value.
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Tuesday’s downtrend resulted from continued profit booking and selloffs in Guaranty Trust Bank, ETI, Guinness Nigeria, Mutual Benefits, AIICO and Mansard, among others. This impacted negatively on Year-To-Date loss, increasing it to 5%, while the drop in market capitalization YTD increased to N1.64tr, representing a 6.38% drop below its opening value for the year.
Bearish Sector Indices
Performance indexes across sectors were bearish, except for the NGX Consumer Goods that closed 0.02% higher, while NGX Insurance led the decliners after losing 1.61%, followed by Banking with 0.47% lower.
Market breadth turned negative, as losers outpaced gainers in the ratio of 17:11; while activities in volume and value terms were up, as stockbrokers transacted to 141.15m shares worth N1.55bn, as against the previous day’s 141.15m units valued at N1.09bn. Volume was boosted by trades in Courtville Business Solution, Zenith Bank, Jaiz Bank Chams and Sterling Bank.
C & I leasing and Royal Exchange were the best performing stocks, gaining 9.85% and 8.82%, while closing at N4.46 and N0.74 per share respectively on market forces. On the flipside, Lasaco Assurance and Champion Breweries lost 7.14% and 5.66% respectively, closing at N1.43 and N2.00 per share, on selloffs and profit taking.
Market Outlook
We expect a reversal and slowdown in the rate of selloffs, despite the ongoing profit taking in the midst of mixed sentiment and the MPC’s decision to leave rates unchanged in the face of rising infection rate of the novel coronavirus across the globe 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
