Market Update for September 8 and Outlook for September 9
By Investdata Analysts
Equity prices on the Nigerian Stock Exchange on Tuesday closed lower for the second consecutive day, continuing its mixed and volatile session as the benchmark index extended its negative stance on a very high transaction volume and selling sentiment. This was on the back of accelerated selloff and profit booking in banking stocks, offering dividend to investors, for which markdown dates are slated for next week.
Tuesday’s losing momentum increased to signal imminent price correction and pullback as investors digest the implication of government policies like the recent hike in electricity tariff and pump price of fuel without considering the multiplier effects such as the price increases, and living standard of Nigerians.
This is also at a time consumer confidence continues to decline due to impact of the coronavirus pandemic outbreak that has affected the purchasing power of the households, in addition to the decline in oil price below $40 on fresh warnings of demand weakness despite the seeming relaxation of lockdown across the globe.
Technically, the Nigerian equity market has extended its weakness for two sessions, suggesting that players should tread cautiously at this stage of correction to avoid falling in a bull trap, because technical tools have signaled short-term overbought region, but are yet to confirm a deeper price correction or pullbacks at this time. Is this rally the BULL TRAP we have been warning about? We wait to see, as the week comedy on a pullback, whether equity prices will confirm any new trend or direction.
Tuesday’s, trading started marginally on the downside, and stained throughout the session on profit taking in medium and high cap stocks, which pushed the NSE index to an intraday low of 25,490.014bps, from its high of 25,596.216bps. Thereafter, it closed the day lower at 25,497.323bps on a negative market breadth.
Market technicals were negative and weak, as traded volume was lower than the previous session in the midst of breadth that favoured the bears and strong selling pressure, as revealed by Investdata’s Sentiment Report showing 93% ‘sell’ volume and buy position of 7%. Total transaction volume index stood at 1.15points, just as the impetus behind the day’s performance remained relatively strong, with Money Flow Index reading 79.80points, from the previous day’s 87.48points, an indication that the entry of funds into the market is declining, despite the down market.
Index and Market Caps
The key performance index at the end of the trading, shed 84.91bps, closing at 25,497.32bps, having opened at 25,582.23bps, representing 0.33% decline, just as, market capitalization fell by N44.3bn to N13.3tr, after opening at N13.35tr, also representing a 0.33%depreciation in value.
The day’s downturn was due to selloffs in medium and high cap stocks like in Guaranty Trust Bank, Zenith Bank, UBA, UBN, Guinness, ETI, and Access Bank, which impacted negatively on the index, increasing Year-To-Date loss to 5.01%. Market capitalization YTD gain dropped to N343.2bn, representing 2.66% above the year’s opening value.
Bullish Sector Indices
Performance across the sectors were largely bullish, except for the NSE Banking that closed southward at 3.42% down, while the NSE Consumer goods index led the advancers, gaining 0.43%, followed by Insurance, Oil/Gas and Industrial goods that were up by 0.26%, 0.19% and 0.01% respectively.
Market breadth was negative as decliners outnumbered advancers in the ratio of 19:10, as market activities in term of volume and value were mixed with volume 1.18% down to 251.96m shares from the 254.97m units on Monday, while value increased by 2.2% to N2.04bn from N2bn, This was driven by trades in Custodian Investment, FBNH, Zenith Bank, Access Bank and Transcorp.
The best performing stocks of the day, were Honeywell Flour and Transcorp after gaining 4.4% and 3.4% respectively to close at N0.94 and N0.60per share on market forces. On the flip side, Arbico and Royal Exchange lost 9.6% and 9.1% respectively, closing at N1.03 and N0.30 respectively on market forces.
We expect a mixed trend on profit taking ahead of qualification and markdown dates of dividend paying banks as investors reposition their portfolios, looking forward to market corrections ahead of the Q3 earnings season. Recall that banks have kept the market above its 50-day moving average on a daily time frame.
The mixed intraday movement is likely to persist as the month of September progresses in the midst of profit booking and negative macroeconomic indices. This is also against the backdrop of the fact that the capital wave in the financial market may persist in the midst of relatively low-interest rates in the money market, high inflation, negative Q2 GDP of 6.1% and unstable economic outlook for 2020 as government and its economic managers are going front and back with mismatch polices and action.
Also, investors and traders are positioning amidst the changing sentiments in the hope of improved liquidity and positive economic indices which may reverse the current trend.
We see investors focusing on portfolio adjustment and rebalancing by targeting companies with strong potentials to grow their dividend on the strength of their earnings capacity.
Again, the current undervalue 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 for the rest of the year.