Mixed trend, portfolio reshuffling ahead on Q1 numbers, economic data

By Investdata Analysts

The mixed trend continued on the Nigerian Stock Exchange on the last trading session of the month and quarter as the benchmark index closed on a negative note, and thereby extending the bear transition for the second successive day, in the midst of corporate earnings and dividend news rains.

We see that the influx of 2020 full-year numbers were not enough to impact the market positively as MTNN price depreciation and profit booking in banking stocks dragged the All Share index down, as many companies moved to meet the official deadline for submission of December year-end accounts.

We notice also that the numbers released so far reveal mixed performances that supported the recent recovery from the first correction after a bullish year, driven by few highly capitalized stocks.

However, despite the mixed and bearish outlook of the general market, some sectors continue to show strength, judging from their recent numbers, as revealed by the power of supply and demand. There have been portfolio readjustments ahead of the 2021 first quarter earnings reports inflow, and corporate actions.

With the expected reaction to dividend news and corporate actions of these companies, the new downward trend signals at the end of midweek’s trading may not linger, if these earnings news and payout by companies will trigger buying interests after two session of sell market as revealed by sentiments report.

The prevailing trend after a correction is normal; as the full-year earnings season winds down, ushering in the 2021 Q1 reporting season, even as the changing momentum in the face of mixed trend indicates the in and out movement of funds from the market as revealed by money the flow index. In the current market situation investors should go for those hot sectors with strong potential to grow sales in the current financial year as events in the economy unfold.

Meanwhile, midweek’s trading opened on the downside and was sustained throughout, despite oscillating on profit and position taking that pushed the NSE index to an intraday low of 39,014.82 basis points from its highs of 39,271.46bps before closing below its opening point at 39,045.13bps on a low traded volume.

Market technicals for the session were negative and mixed, with volume traded higher than previous day’s in the midst of negative breadth and selling pressure as revealed by Investdata’s Sentiments Report showing 88% ‘sell’ volume and 12% buy position. Total transaction volume index stood at 0.91 points, just as momentum behind the day’s performance were relatively strong, despite Money Flow Index dropping slightly to 65.28pts, from the previous day’s 67.57pts, indicating that funds left the market to reflect profit taking.

Index and Market Caps

At the end of Wednesday’s trading, the All Share Index lost 221.98bps, closing at 39,045.13bps after opening at 39,267.11ps, representing a 0.57% decline. Similarly, market capitalization fell by N116.14bn, closing at N20.43tr, from previous day’s N20.54tr, which also represented 0.57% value loss.

Midweek’s downturn was driven by selloffs and profit taking in stocks like MTNN, Guaranty Trust Bank, Zenith Bank, UBA, Access Bank, Stanbic IBTC, Julius Berger, and Ecobank Transnational, among others. This impacted negatively on the Year-To-Date loss, which rose to 3.04%, just as market capitalization loss increased to N784.57, or 3.01% below its opening value for the year.

Mixed Sector Indices

Performance indexes across the sector were mixed, as the NSE Banking, and Industrial Goods closed 0.84% and 0.03% lower respectively, while the NSE Insurance led the advancers after gaining 2.22%, followed by Consumer Goods and Energy with 0.39%.

Market breadth turned negative, as decliners outpaced advancers in the ratio of 23:18; just as activities in volume and value were mixed after stockbrokers crossed 347.17m shares valued at N2.80bn.

Linkage Assurance and Prestige Assurance were the best performing stocks, after gaining 10% and 9.76%, closing at N0.66 and N0.45 per share respectively on market forces and dividend news. On the flip side, Daar Communication and Wema Bank lost 8.70% and 8.06% respectively, closing at N0.21 and N0.57 per share, on selloffs and market forces.

Market Outlook

We expect the mixed trend to continue as portfolio reshuffling and adjustment ahead of Q1 numbers and economic data in the face of rising dividend and fixed income market yields.  Also, the pullbacks offer bargain hunters and income investors another opportunity to reposition in high dividend yields and undervalued stocks, while quarterly numbers to support recovery. This is based on the fact that the rising fixed income yields may not be enough to scare all investors away from the equity space.

Again, the way to go is: Target dividend-paying stocks and fundamentally sound companies with growth prospects in 2021, looking the way of mispriced equities. This is especially given the rising oil prices that have so far supported the economy and equity market, despite the seeming improvement in the fixed income yield which had remained at negative real rate of return due to the subsisting high inflation.

However, the strong and faster recovery may continue, depending on market forces, going forward, as propelled by 2020 full numbers and expected 2021 Q1 earnings reports, until the next MPC meeting in May.

The NSE’s index action and indicators are heading in the same direction   on a low traded volume and positive buying sentiments in the midst of rising yield in bond and TB.