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Market correction may linger, offering new entry opportunities ahead of year-end



NGX Defies Odds to Post N1.4 Trillion Gain in August
Market Update for November 16

By Investdata Analysts

Mixed Sessions Ahead On NGSE, Amidst Q3 Earnings Inflow, Profit Booking

Monday’s equity prices on the Nigerian Stock Exchange (NSE) closed lower, for the second consecutive trading session amidst the continued profit booking across sectors after eight straight weeks of market rally, resulting in losses. The good thing is that the pullbacks or price corrections are creating another new buy-in opportunities that will rally when market turn up, despite the fact that factors responsible for the recovery and the bull transition have remained strong over the year.

We expect the NSE index to rebound before the week runs out after the profit taking to sustain this uptrend till early second quarter of 2021.

Under the prevailing market situation, stock-picking will play an increasingly important role. Meanwhile, separating wining investors and traders from the bunch, with interest rates likely to remain low till next year, even as stagflation continues to destroy returns in many investment windows.

At a time like this, therefore, the stock market remains the place to hedge against the rising inflation that will continue on the northward spiral, given all of the fiscal mishaps in the economy including the border closure and failure to check the spate of insecurity, and burgeoning corruption, except, of course, a miracle happens soon.

At things stand, only players who can find hidden opportunities in the market will be best positioned to outperform the NSE and other windows.

From all that is visible today, the year 2021 will be much more about stock picking and should favour companies able to deliver earnings growth beyond expectation.

As such, this is the time to look out for undervalued stocks with strong fundamentals in the different sectors across the market for repositioning purpose, even as we expect the NSE’s rebound to surpass the 2018 highs next year. Only investors able to identify and pick undervalued stocks will profit most.

The nation’s stagflation is a reflection of the mismatch in fiscal and monetary policies as reflected in the 14.23% October inflation level released on Monday by the National Bureau of Statistics (NBS), from 13.71% in September, representing a 52bps uptick YoY. The inflation figure came worse than expected, validating the sustained surge in cost of living across the country.

The primary contributor and pressure point was food inflation (+72 bps to 17.38% YoY) as prices of food staples rose considerably in the month under review, followed by core inflation that advanced by 56bps to 11.4% YoY. On a month-on-month basis, headline inflation printed at 1.54%, its highest level since June 2017.

The lingering impact of border closure since August 2019, hike in electricity and fuel cost, in addition to insecurity across the country that pushed cost of production and prices of goods higher, coupled with insecurity and flooding that had affected framers. Investdata believes that the time has come for government to revisit some of its policies and make adjustments, because it is now obvious that we cannot the country is plagued by a food crisis. Unfortunately, there is yet no preparation or plan. This is time for forward thinking because this inflation data is a threat to the economy and investment.

Meanwhile, Monday’s trading opened on the upside before pulling back at the mid-morning and oscillated for the rest of the session on profit taking and repositioning that pushed the NSE index to intraday low of 34,685.94bps from its highs of 35,245.62bps. Thereafter, it broke down the 35,000 basis points psychological level, closing lower at 34,774.08bps on above average traded volume.

Market technicals during the day were negative and weak as volume traded was lower when compared to the previous session in the midst of breadth favoring the bears on selling sentiment, as revealed by Investdata’s Sentiment Report showing 80% ‘sell’ volume and 20% buy position. Total transaction volume index stood at 1.28 points, just as impetus behind the day’s performance was strong, with Money Flow Index reading 91.70 from the previous day position of 100 points. This is an indication that funds left the market as profit taking persist.

Index and Market Caps

At the end of Monday’s trading, the composite NSEASI shed 263.38bps, closing at 34,774.08bps, representing a 0.75% decline, after opening at 35,037.46bps. Market capitalization lost N137bn, closing at N18.17tr, from an opening value of N18.31tr, which also represented a 0.75% value loss.

The session’s downtrend was propelled by losses suffered by stocks like Zenith Bank, Flour Mills, UACN, Ecobank Transnationa Incorporated, Dangote Sugar, Oando, Fidelity Bank and Transcorp, among others. These weigh down Year-To-Date gain to 29.55%, while Market capitalization YTD returns stood at  N5.21 trillion, representing a 50.22% rise above the year’s opening value.

Bearish Sector Indices

All the sectorial performance indexes were bearish, except for the NSE Industrial Goods that closed higher by 2.09%, while NSE Banking led the decliners after losing 4.43%, followed by the NSE Consumer Goods, Insurance, and Oil/Gas closed 2.91%, 1.71% and 0.89% lower respectively.

Market breadth was negative as decliners outnumbered advancers in the ratio of 43:11, while transactions in volume and value terms dropped by 45.97% and 51.81% respectively while investors exchanged 668.53m share shares worth N7.85bn, compared to the previous day’s 1.24bn units valued at N16.29bn. Volume was driven by trades in Zenith Bank, Transcorp, FBNH, UBA and Access Bank.

Boc Gases and Neimeth Pharmaceutical were the best performing stocks, gaining 9.92% and 8.99% respectively at N5.32 and N2.91 per share on the back of their impressive earnings and dividend expectations. On the flip side, Oando and Nahco lost 10% each, closing at N3.60 and N2.34 each respectively, on market forces and profit booking.

Market Outlook

Profit taking may reduce, with all eyes on next week’s MPC meeting outcome, just as technical indicators reveal overbought on a monthly, weekly and daily chart, while RSI read 96.16 points, a situation that support correction. However, the strong and faster recovery may continue, depending on market forces going forward. This will depend on the quality of Q3 score-cards presented, especially by the tier-1 banks, even as analyses of numbers released so far have helped repositioningof investors’ portfolios on the strength of sector 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.

Bull-trend may continue on funds inflow, corporate numbers, profit-taking

Ambrose Omordion, Chief Research Officer, InvestData Consulting Limited

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