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Correction Ahead On NGSE, As Investors Position For Interim Divs, Economic Data

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Monday’s trading on the Nigerian Stock Exchange (NSE) closed slightly higher on increased buying wave in manufacturing and banking stocks that pushed the composite All-Share index up, sustaining its positive outlook for three consecutive sessions of gains.

The NSEASI has again formed another double top on a daily chart at a strong resistance level of 25,605.59 basis points on a relatively high traded volume and mixed sentiment, trading above the seven, 20 and 50-Day Moving Average.

Technically, at the end of Monday’s trading there was a reversal sign in trend which would be confirmed in the next trading session, as profit taking is likely to halt the current recovery move. Also important is the nosedive in oil prices after OPEC downgraded its demand outlook for the commodity market in the face of naira depreciation and forex scarcity.

The price swings since the beginning of September was driven by interim dividend paying banking stocks, ahead of the adjustment of their share prices from midweek, and ahead of expectations of the August inflation data and Q3 earnings reporting season. These are happening in the midst of the wobbling economic fundamentals and the mismatch of economic policies that may likely delay recovery from pandemic induced downturn except the CBN continues its efforts at jumpstarting the economy again by making funds available to private sector and the economy at large.

We notice that more companies made available their earnings forecasts for the expected Q3 and full year to the market in order to let investing public know where they are heading.

Meanwhile, Monday’s trading opened marginally upside before pulling back between mid-morning and midday, after which it oscillated for the rest of the day on position taking in high cap stocks, and profit taking that pushed the benchmark index to an intraday high of 25,616.99bps, from its low of 25,577.33bps. Thereafter, it closed above its opening figure at 25,60559bps on seeming positive breadth.

Market technicals during the session were positive and mixed, with volume higher than the previous session’s in the midst of breadth that favoured the bulls on positive sentiments, as revealed by Investdata’s Sentiment Report showing 71% ‘buy’ volume and sell position of 29%. Total transaction volume index stood at 1.11points, just as energy behind the day’s performance remained relatively strong, with Money Flow Index reading 72.52points, from the previous day’s 72.53points, an indication that funds entered the market at a slower rate despite the up market.

Index and Market Caps

At the close of Monday’s trading, the NSEASI gained 13.64bps, closing at 25,605.59bps, after opening at 25,591.95bps, representing 0.05% rise, just as market capitalization notched N7.11bn to N13.36tr, after opening at N13.35tr, also representing a 0.05% value gain.

Monday’s upturn was due to price appreciation in Dangote Cement, Guaranty Trust Bank, Zenith Bank, CAP, Lafarge Africa, FBNH, and Fidelity Bank, among others, which impacted mildly on the index as it reduced Year-To-Date loss to 4.61%, while market capitalization YTD gain inched to N404.45bn, representing 3.04% above the year’s opening value.

Mixed Sector Indices

Performance index across the various sectors were mixed, as the NSE Industrial Goods and Banking closed 0.51% and 0.15% higher respectively, while the NSE Consumer Goods, oil/gas and insurance index shed 0.50%, 0.08% and 0.07% respectively.

Market breadth was positive as advancers outnumbered decliners in the ratio of 17:16, with transactions in term of volume and value rose by 20.82% and 45.75% respectively, after investors traded 257.03m shares worth N3.32bn, as against the previous day’s 212.73m units valued at N2.28bn. This was boosted by trades in Custodian Investment, Guaranty Trust Bank, Lafarge Africa, FBNH and Access Bank.

The best performing stocks for the session were Neimeth Pharm and Royal Exchange Assurance which gained 9.55% and 7.14% respectively, closing at N1.95 and N0.30 per share on positioning for full year earnings expectation and market forces respectively. On the flip side, International Brewery and UACN Property lost 8.57% and 8.42% respectively, closing at N3.20 and N0.87 respectively on profit taking and market forces.

Market Outlook

We expect profit booking and positioning ahead of qualification and markdown dates for dividend paying banks, as investors reposition their portfolios, looking forward to market corrections ahead of economic data and Q3 earnings season. Recall that banks have kept the market above its 50-day moving average on a daily time frame, which is equally at overbought zone in the short term.

The mixed intraday movement is likely to persist as the month of September progresses in the midst of profit booking, mismatch economic policiesand 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 the rest of 2020 as government and its economic managers are going front and back with mismatch polices and implementation.

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  Q3 earnings and dividend on the strength of their earnings capacity as the year last quarter is at the corner.

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.

Stocks, Stock, Ambrose Omordion

Ambrose Omordion, Chief Research Officer, InvestData Consulting Limited

info@investdataonline.com

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