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Interim Div Expectations, Oil Price Sustain NGSE Uptrend, Amid Portfolio Realignments



Market Update for August 25

By Invesdata Analysts

Investdata Limited | LinkedIn

Again, the seeming bull trend on the Nigerian Stock Exchange (NSE) continued, with increased gaining momentum on Tuesday, defying the impact of the recently published 2020Q2 showing a 6.1% GDP contraction of 6.1%, resulting from the telling impacts of the Coronavirus pandemic  and the oil price plunge.

Buying interest in building and construction stocks among investors helped the composite NSE All Share index to close higher, extending the bull-run for the sixth successive trading session on increased buying pressure and volume traded.

We note that the stock market and economy are moving in opposite directions since the outbreak of COVID-19 in March that pushed the market to its 11-year low on panic selloffs before the rebound in April, as foreign investors repositioned their portfolios on low price attractions.

The 2019 full-year corporate earnings and payout supported the bull transition before the ongoing half-year earnings reporting season, with companies posting better-than-expected numbers to sustain the positive sentiments despite profit booking at intervals.

The rallying crude oil prices at $45 per barrel, and interim dividend expectation have kept the market in the uptrend, even when technical indicators and chart patterns are revealing double top formation and short-term overbought region that signal pullback and price correction.

Although Nigeria’s GDP recorded its first contraction since 2017, the possibility of the economy sliding into another recession again is slim, against the backdrop of factors such as the ongoing easing of the lockdown and reopening of the economy, oil price recovery, the bouquet of intervention packages by the fiscal and monetary authorities targeted at critical sectors.

The expected economic recovery may support the market in 2021, so investors should have good entry strategies and plan their exit strategy for every market cycle amidst the ongoing economic reset across the globe.

Tuesday’s trading opened on the upside before pulling back in the mid-morning and rebounding at midday, before oscillating for the rest of the session on position taking in industrial goods and insurance stocks. This pushed the NSE index to intraday high of 25,291.78basis points, from its low of 25,201.79bps after which the market closed higher at 25,291.78bps on a negative breadth.

Market technicals for the session were positive and mixed, with higher volume traded than that of previous session with breadth favoring the bears, as well as positive sentiments as revealed by Investdata’s Sentiment Report showing 100% ‘buy’ volume. Total transaction volume index stood at 1.17points, just as the momentum behind the day’s performance remained strong, with Money Flow Index reading 72.79points, from the previous day’s 73.84points, an indication that funds left some stocks despite the up market.

Index and Market Caps

The All Share index at the end of Tuesday trading gained 62.61bps, closing at 25,291.78bps, after opening of 25,221.87bps, representing 0.25% growth, just as market capitalization inched by N32.67bn N13.19tr, after opening at N13.16tr, also representing a 0.25% value gain.

The day’s upturn was due to price appreciation by BUA Cement, Zenith Bank, UBA, Lafarge Africa, Flour Mill, Julius Berger, Fidelity Bank and International Breweries. This impacted positively on the index’s as Year-To-Date loss as it dropped to 5.78%, while market capitalization YTD gain stood at N235.67bn, or 1.73% above the year’s opening value.

Mixed Sector Indices

Performance indexes across sectors were largely bearish, except for the NSE Insurance and Industrial Goods that closed 1.62% and 1.10% higher respectively, while the NSE Banking index lost 0.22%, followed by NSE Consumer goods and NSE Oil/Gas with 0.07% and 0.04% lower respectively.

Market breadth was negative as decliners outnumbered advancers in the ratio of 20:15, while transactions in terms of volume and value were mixed, even as traded volume was slightly up by 0.06% after investors exchanged 251.34m shares compared to the previous day’s 251.19m units. Transaction value fell by 50.6% to N1.17bn from N2.36bn on Monday. Volume was boosted by trades in Transcorp, UBA, Wema Bank, Zenith Bank and Sterling Bank.

NEM Insurance and Julius Berger were the best performing stocks, gaining 9.63% and 3.03% respectively to close at N2.05 and N17.00 per share on market forces and low price attraction respectively. On the flip side, Beta Glass and May & Baker lost 9.99% and 9.90% respectively, closing at N55.40 and N2.73 respectively on profit taking.

Market Outlook

We expect the current trend to continue on profit taking and buying interests ahead of the interim dividends from Stanbic IBTC, GTB, Zenith Bank, Access Bank and UBA, that have kept the market above the 50-day moving average on a daily time frame. The mixed intraday movement is likely to persist as the month of August gradually winds down in the midst of window dressing, profit booking and investors repositioning their portfolios ahead of Q3 numbers. 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 in anticipation of interim dividend paying companies earnings reports, 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.

Stocks, Stock, Ambrose Omordion

Ambrose Omordion, Chief Research Officer, InvestData Consulting Limited.

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