Market Update for the Week Ended May 8 and Outlook for May 11-15
Transactions on the Nigerian Stock Exchange for the first full trading week of May were bullish, extending the sharp divergence between the market’s rally and economic realities, as the anticipated profit-taking from the previous month’s gains was almost absent even when technical tools revealed the possibility of a pullback. The rally continued till Friday when it slowed down as trader’s cashed out profit from banking and other blue-chip stocks.
The rising demand for highly capitalized equities at a time of oil price surge helped by the easing of the lockdown that followed the spread of the Coronavirus pandemic across the globe has gradually triggered demand for crude oil again. Recall that the price of oil, which accounts for roughly 80% of Nigeria’s annual revenue, had over the past weeks traded sub-optimally, due to the restriction of movements and shutdown of manufacturing facilities in different parts of the world to curtail the spread of the deadly virus. We expect that the production cut agreed among members of the Organisation of Petroleum Exporting Countries (OPEC) and major non-members of the cartel, will support this oil price recovery in the coming months.
The ongoing pandemic has distorted the flow of events, prompting a shift in global capital, especially as it concerns how capital is identified and is deployed for the juiciest Return on Investment (ROI) throughout the major financial markets.
We believe a long-term price cycle event is taking place and will prompt a deeper price bottom event that will likely complete around August or September 2020.
This will keep traders and investors always at alert, and if our projection is right, the Q2 and Q3 economic data will be very distressing and likely to prompt a continued downside price contraction in stock price levels and valuations. This disruption to the economy is likely to shave between 3% and 9%, or even more off Nigeria’s GDP output for this year.
It is noteworthy that the Central Bank of Nigeria (CBN) has poured more and more capital into the economy in an attempt to front-run this downturn in system and market, following which any pullback now could be temporary.
Despite the pullback on Friday, the market still remained bullish on a weekly time frame, as the NSE All-Share index’s action broke out from the bearish channel to trade above the 161.8% Fibonacci retracement. After this correction at the short-term overbought level, this recovery is likely to continue, depending on economic data that would be released and the impact of the government’s intervention packages for the critical sectors.
We see an opportunity to take a bullish trade within a long bearish index movement, but there must be a good exit strategy at every moment of the season.
Movement Of NSEASI
Trading for the period opened on a positive note on the extension of previous week’s bull-run to close 0.30%, up, a positive sentiment that was sustained on a strong buying interest among the high cap stocks on Tuesday, midweek and Thursday when it closed 3.12%, 1.40%, and 0.87% higher respectively. Thereafter, the NSEASI succumbed to profit-booking pressure on Friday, as a result of which it closed 1.27% lower, bringing the week’s total gain to 4.45%, as against the previous week’s 1.87% notch. It thereby extended the two-consecutive weeks of uptrend on increased traded volume, following the relaxation of the lockdown after more than a month of restriction movement and business activities in Lagos, Ogun State, and Federal territory FCT Abuja.
Consequently, the NSE’s composite index for the period jumped by 1024.39 basis points, after opening at 23,021.01ps, within which time it touched an intra-week high of 24,403.77bps, from its 22,940.24bps low on strong sentiments and high buying pressure. This occurred as traders and investors positioned ahead of dividend qualification dates and markdown in the midst of profit-taking, corporate earnings expectations, and the economic uncertainties. The key performance index closed higher at 24,045.40ps, compared to previous week’s close after to break out of the 24,000 marks, just as market capitalization rose by N533.86bn, closing at N12.53tr, from the previous weekend’s N12tr, representing a 4.45% appreciation in investors’ portfolios. This was despite the adjustments in the share prices of NEM Insurance, Lafarge Africa, Sterling Bank and Wema Bank for dividends of 15 kobo, N1.00, 3 kobo and 4 kobo respectively.
Of the 11 companies that released their corporate earnings, four were 2019 audited results, while directors of insurers- AIICO, Prestige Assurance, and AXA Mansard Insurance, as well as Portland Paints and Products, were silent on dividend declaration. Others were quarterly reports from VeritasKapital Assurance, Guinness Nigeria, UACN, Learn Africa, Beta Glass, Sterling Bank, and Notore Chemical Industry.
The performance of these companies was mixed, with only a few posting impressive results, especially Aiico Insurance.
The week’s advancers table was dominated by low, medium, and large companies stocks, while demand for high cap stocks and positive sentiments reflected in the market breadth with advancers overtaking decliners in the ratio of 39:22. This, notwithstanding, the momentum behind the week’s performance was weak, as the Money Flow Index read 21.71bps, up from 14.37bps in the previous week does not give any reason for cheer.
ADX weekly time frame is trending up to trade above 20 at 31.73points, with MACD looking up to cross the signal line on mixed sentiments as revealed byInvestdata’s Sentiment Report for the week, showing 76% ‘buy’ volume and sell position of 24%, with the transaction volume index at 1.11.
Bullish Sectoral Indices
All the sectorial performance indexes were in green during the week, reflecting the active positioning of players, following which the NSE Consumer Goods index led the advancers after gaining 8.45%, followed by NSE Banking despite the profit-taking that hit sector during the period, while NSE Oil/Gas, Insurance and Industrial goods were up by 2.83%, 2.76% and 2.20% respectively.
Activities in terms of volume and value were up by 64.36% and 84.13% respectively as investors traded 1.66bn shares worth N18.21bn, from the previous week’s 1.01bn units valued at N9.89bn. The week’s volume was boosted by trades in financial services stocks, especially FBN Holdings, Guaranty Trust Bank, and Zenith Bank.
ARDOVA (former Forte Oil) and C&I Leasing was the best-performing stocks during the week, gaining 32.47% and 26.92% respectively, closing at N15.30 and N0.33 per share on market forces and low price attraction. On the flip side, Linkage Assurance lost 16.98%, closing at N0.44.
In the new week, we expect profit booking to continue at the first few trading days as players cash out their profit from the recent rally as market correct to make fundamentally sound stocks attractive again before their markdown dates. Also, the possibility of continued funds inflow to the market in the new week is high due to the number of blue-chip companies that have announced their qualification dates and AGMs. In the meantime, investors have continued to digest the score-cards released last week to help them make informed investment decisions while repositioning their portfolios. Investors also should look out for developments regarding the implementation of the CBN’s funding plan for small and medium scale businesses.
Already, we notice that investors are taking the position in healthcare and other defensive stocks that are likely to survive this meltdown, following which there is increased transactions in them, even as global markets continue on the recovery path already, as lockdowns are gradually being relaxed.
Also, do not forget to identify and play defensive stocks among the many fundamentally sound companies, as their share prices remained depressed, making them attractive for bargain hunting by market players. This has also resulted in significant improvements in Dividend Yields of stocks, even as we note the fact that fund managers who held cash before now, may have to rethink the strategy and go for value stocks with high upside potentials.
While discerning investors should take advantage of the current low stocks valuation to position for the medium to long-term, it is noteworthy that the Nigerian equity market is selling at a discount and therefore offers high upside potential.
On a bargain-hunting motive supporting positive performance, especially with many fundamentally sound stocks remaining underpriced. With a dividend yield of major blue-chips continuing to look attractive in recent weeks, we expect speculative trading to shape the market’s direction, despite the seeming mixed outlook.
To position for the short to long-term, this is why investors should target fundamentally sound, dividend-paying stocks, for possible capital appreciation in the coming months. 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.
Meanwhile, the home study packs of our Invest 2020 Opportunities and Trade Ideas Summit, containing different Stocks for various investment objectives in 2020 and beyond are available. To obtain your pack send ‘Yes’ or ‘Stock’ to 08028164085, 08032055467, 08111811223 now.
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