Mixed Trading Ahead Still, As Inflation Data Influences Investment Decisions

By InvestData Analysts

Monday’s trading activities on the Nigerian Stock Exchange remained volatile and mixed with the benchmark All Share index closing red again, thereby extending Friday’s negative stance. This is amidst global fears as the coronavirus scourge fuels mixed trend, threatening economic recovery, even as nations relax the lockdowns to allow for productive activities.

The nation’s negative macroeconomic indices continue to worsen meanwhile, as revealed by the latest labour market reports estimating underemployment and unemployment rates at 55.7% at half-year 2020; while July consumer price index soared by 12.82%, rising for the 12 consecutive month, from 12.56% in June. These are further manifestations of policy mismatch among government and its economic managers as the economy continues to gasp for breath in the absence of a clear direction and political will to do the needful. The government however continues to borrow, swelling public debt, which many fear has reached unsustainable levels again, amidst confirmation of reports about a sovereignty clause in the loan from China by the House of Representatives after strident denials by the Federal Government.

The rising inflation and attendant high cost of living today, amidst the novel coronavirus pandemic spread, has exposed the lack of coordination among government agencies and policy makers at all level.

The situation is getting worse with policy summersaults, insincerity of government, insecurity in the farm, high cost of transporting produce, multiple taxes or levies on the road, and low farm yields, among others. This trend is likely to continue as farmers are already complaining of bad weather of the scant rains which would likely impact negatively on commodity prices and keep inflation on the rise.

The mixed sentiment during the trading session failed to lift the market as profit taking continued among high cap stocks, irrespective of the buying interests in consumer goods, insurance and oil/gas sectors on low valuation and the impressive first quarter earnings from March year end accounts. This is especially as flour milling companies have posted better-than-expected full-year and first quarterly numbers.

Meanwhile, Monday’s trading started slightly on the upside and was sustained till mid-morning before oscillating between the midday to afternoon on mixed sentiment, position taking and profit booking across sectors. These pushed the NSE’s composite NSEASI to an intraday low of 24,883.70basis points, from its high of 25,236.97bps, before retracing up slightly and closing at 25,143.68bps.

Market technicals were weak and mixed, with volume traded lower than that of previous session in the midst of breadth that favoured the bulls on mixed sentiments as revealed by Investdata’s Sentiment Report showing 70% ‘buy’ volume and 30% ‘sell’ position. Total transaction volume index stood at 0.78 points. The momentum behind the day’s trading performance remained relatively strong, despite looking down as Money Flow Index read 66.28points, from the previous day’s 66.10points. This is an indication that funds entered some stocks, despite the down market, in the midst of prevailing low liquidity as unstable exchange rate continues to impact smart money flow.

Index and Market Caps

The NSEASI, at the close of Monday day’s trading, shed a marginal 56.16bps, closing at 25,143.68bps, from its opening figure of 25,199.84bps representing a 0.22% drop, just as market capitalization fell by N26.3bn, closing at N13.12tr, from the N13.15tr opening value, which also represented 0.22% value loss.

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Monday’s downturn was impacted by continued profit booking in medium and high cap stocks like Dangote Cement, Guaranty Trust Bank, Ecbank Transnational Incorporated, UACN, Access Bank, International Brewery, Fidelity Bank, and United Capital. This expectedly impacted mildly on the NSE, as Year-To-Date loss increased to 6.33%, while market capitalization YTD gain dropped to N152.37bn, representing 1.18% above the year’s opening value.

Mixed Sector Indices

The sectorial performance indexes were largely bullish, except for the NSE Industrial Goods and Banking that closed 0.38% and 0.24% lower respectively, while the NSE Insurance led the advancers after gaining 2.89%, followed by the NSE Consumer Goods and Oil/Gas with 0.59% and 0.49% higher respectively.

Market breadth was positive as advancers outnumbered decliners in the ratio of 17:15, while market activities in terms of volume and value traded fell by 66.69% and 59.87% with investors trading 161.23m shares worth N1.85bn, from Fri day’s 482.52m units valued at N4.52bn. Volume was boosted by trades in Guaranty Trust Bank, Zenith Bank, Sterling Bank, FBNH and International Breweries.

Ambrose Omordion, Chief Research Officer, InvestData Consulting Limited

The best-performing stocks for the session were Unilever and NNFM, which topped the advancers table, gaining 10% and 9.82% respectively, closing at N13.75 and N4.25 per share on low price attraction and improving earnings. On the flip side, Livestock Feeds and Vitafoam lost 8.33% and 5.22% respectively, closing at N0.55 and N5.45 respectively on profit-taking.

Market Outlook

We expect a mixed performance on profit taking and buying interest as corporate earnings, while equity prices may reflect the released inflation figure of 12.82% and influence investment decision and flow of funds as the market expects the earnings reports of the big banks. The mixed intraday movement is likely to persist in the midst of profit booking and investors repositioning their portfolios ahead of Q3 numbers and last quarter of the year. 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 and unstable economic outlook for 2020 as government and its economic managers are going front and back with mismatch polices.

Also, investors and traders are positioning in anticipation of interim dividend pay 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 potential 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.