Capital Market
NGSE Close 2021 First Trading Session Upbeat, Amidst Positioning In Undervalued Stocks
Market Update for January 4, 2020
By Investdata Analysts
The Nigerian equity market kicked off activities for 2021 on a positive note and strong buying sentiments on Monday, pushing the composite All-Share index higher on a low traded volume that extended the Santa Claus rally into the New Year with stocks joining the rally, ahead of economic and corporate earnings reports.
The return of investors to the market after the New Year holiday propelled the strong recovery moves, as all sectorial indexes closed green, indicating that more funds flowed into equity assets. This was just as it showed the presence of smart money targeting stocks with high margin of safety and history of high dividend payout that support stronger yields and price appreciation.
The NSE benchmark broke out the 41,000 resistance level, following which there is the high possibility of this trend continuing ahead of the full-year earnings reporting season in 2021, notwithstanding the fear of the January effect. This is because there are no other investment windows offering returns above the nation’s inflation rate, especially against the backdrop of the twin major factors of low interest rates in fixed income instruments and rising oil prices currently supporting the bull market.
However, we must warn at this point that investors should not underestimate the possibility of minor corrections at any time soon, because profit-taking is inevitable, even while the market has a trading pattern that supports an uptrend.
The summary is: considering the prevailing new trading pattern and the fact that the index is rallying outside the upper limit of the Bollinger band, signaling sell, while other technical indicators are showing overbought and support a possible market pullback.
Meanwhile, Monday’s trading started on a strong note which was sustained throughout the session on high demand for banking, industrial and consumer goods. This pushed the benchmark index to an intraday high of 41,154.33 basis points, from its low of 40,284.00bps, before closing higher at 41,147.39bps.
Monday’s market technicals were positive and mixed with volume traded lower than the previous day’s in the midst of positive breadthand high buying pressure as revealed by Investdata’s Sentiments Report showing 99% ‘buy’ volume and sell position of 1%. Total transaction volume index stood at 0.53 points, just as momentum behind the day’s performance was strong, with Money flow index looking up at 88.63pts, from the previous day’s 80.12pts, indicating that funds entered the market ahead of the 2021 corporate actions.
Index and Market Caps
At the close of Monday’s session, the NSE All Share index gained 876.67 basis points, after opening at 40,270.72bps representing a 2.18% growth, just as market capitalization rose by N458.39bn, closing at N21.52tr, from an opening value of N21.06 trillion, representing a 2.18% value gain. During the session, Unilever notified the exchange of its closed period and board meeting to approve 2020 financial statement.
The session’s upturn was impacted by the buying interest in stocks like BUA Cement, WAPCO, Vitafoam, Flourmills, Zenith Bank, Guaranty Trust Bank, International Breweries, Honeywell, Transcorp, Fidelity Bank and Sovereign Insurance among others. This impacted positively on Year-To-Date gains, which stood at 2.18%, just as YTD gain in market capitalization was N458.39 billion, representing a 2.18% growth.
Bullish Sector Indices
All the sectorial performance indexes closed higher, led by the NSE Industrial Goods which gained 4.66%, followed by the Insurance, Banking, consumer goods and Oil/Gas thatclosed 4.39%, 3.68%, 2.33% and 0.39% higher respectively.
Market breadth turned positive, as advancer outnumbered decliners in the ratio of 32:2; even as transactions in volume and value terms dropped by 70.18% and 86.01% respectively, while traders exchanged 211.93m shares worth N1.41bn, from the previous 710.7m units valued at N10.08bn. The day’s volume was driven by Aiico, FCMB, Transcorp, Wapco and Access Bank.
The best performing stocks during the session were Honeywell and Transcorp, which gained 10% each, closing at N1.32 and N0.99 per share, on market sentiment and forces. On the flip side, FCMB and Caverton lost 6.01% and 5.3% respectively, at N3.15 and N1.98 per share, on market forces. For FCMB, it is not known what the loss has anything to do with the current travails of the Managing Director, who the board said is being investigated for amorous relationship with his former subordinate, a married woman, whose marriage crashed, with the husband allegedly committing suicide, unable to live with the trauma.
Market Outlook
The trend witnessed on the first trading day of the year is expected to continue on buying interests in undervalued stocks, especially those with high dividend yields as low interest rates and rising oil price that has so far supported the Nigerian equity market, remain intact. There is also the likelihood of more stocks joining the extended Santa Claus rally, as investors position for the new year. Also, important is the fact that technical indicators reveal overbought on the weekly and daily chart, while RSI reads 70 points and above, a situation that supports the likelihood of another correction.
However, the strong and faster recovery may continue, depending on market forces, going forward, as propelled by the quality of Q3 earnings presented, especially by the tier-1 banks, even as analyses of numbers released so far have helped repositioning of investors’ portfolios on the strength of sectoral and company’s performances.
The NSE’s index action and indicators are looking up in the same direction on a very high traded volume and positive buying sentiments.
Again, 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 rest of the year.
Ambrose Omordion, Chief Research Officer, InvestData Consulting Limited
