NGSE index retraces up on MPC meeting outcome

• But bargain hunting ahead as year-end beckons

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Market Update for the Week Ended November 27 and Outlook for Nov 30- Dec 4

By Investdata Analysts

The bulls resurfaced on Nigeria’s equity market following the profit taking as the Monetary Policy Authorities left all instruments unchanged in the midst with oil price crossing $48 per barrel, even as money market rates crashed further in the face of real negative returns given the hyperinflation now threatening the economy and investment.

It is true that the recovery moves on the Nigerian Stock Exchange (NSE) is still intact with the ongoing bargain hunting for growth stocks and blue-chip companies that have kept the market in uptrend. This is especially as more money market funds mature and would likely flow into the equity market, due to the continued low yields in fixed income market.

After the just concluded Q3 earnings season, companies with December year-end should naturally be the major investment attractions at the moment, depending on the sector, company performances and prospects. We also believed that the earnings capacity of these companies and dividend history, in addition to movements in economic indicators and policies, will sharply dictate market direction, going forward.

The next major earnings season is expected to commence in the first quarter of 2021 with the early filers as funds search for better returns and yields, considering the prevailing inflationary environment. So, it is advisable that target yields that are above 7.5%, being that the market’s average dividend yields at 5%, is above returns from all other investment windows, considering the shortest time period.

The seeming improvement in some macroeconomic indices like Purchasing Managers index for November revealed expansion in the nation’s industrial output after six months of contraction as PMI stood at 50.2points, from 49.6 points in October. Q3 GDP contracted by 3.62%, officially confirming the nation’s entry into recession after two consecutive quarters of economic contraction, even as it representing an improvement over the previous 6.1% negative Q2 GDP. In all these reports, there are also improvement in economic fundamentals and activities in the aftermath of the Coronavirus pandemic, among others.  For the growth in PMI and GDP to be maintained, there is need for the Central Bank of Nigeria (CBN) to unify the exchange rates.

Movement of NSEASI

Trading activities for the week was bullish, despite the composite index closing on a negative note on the first trading day of week, as investors extended previous week’s profit taking ahead of the MPC meeting outcome. The market had four sessions of gain on a low traded volume and buying pressure, as it closed higher. Monday’s session was bearish, as the NSE lost 0.04%. This trend was halted on Tuesday, when the benchmark index gained 0.68% on renewed demand for stocks, which was sustained at the midweek and the days that followed, as the index closed 1.25%, 0.10% and 0.24% higher respectively. This bought the week’s total gains to 2.19% from the previous week’s loss position of 2.57%.

Consequently, the All-Share index closed higher at 34,885.51 basis points after opening the week at 34,136.18 basis points, and thereafter touching an intra-week high of 34,885.51bps, from a low of 33,582.38bps, due to the post-MPC meeting bargain hunting and positive sentiments during the period. This was just as market capitalization gained N347.49bn, closing at N18.23tr from the previous weekend’s N17.84tr, which represented a 2.57% value loss.

Within the week, 11 companies filed their quarterly scorecards, including seven Q3 earnings from FCMB, FBN Holdings, Unity Bank and others,’ while Q2 numbers came from Academy Press and FTN Cocoa. Also during the period, International Energy Insurance and FTN Cocoa presented their 2019 audited full-year results to the market, while the share prices of Nigerian Breweries and Nestle Nigeria were adjusted for N0.25 and N25 dividend per share as recommended by their boards. AXA Mansard Insurance announced 17 bonus shares for every seven held as of the December 14, 2020 qualification date.

The week’s advancers’ table was dominated by low and highly priced stocks, reflecting the market recovery in the period, just as the negative breadth showed a mixed trend and cautious trading, with the number of decliners outnumbering gainers in the ratio of 43:27 on a high buying sentiment and positive momentum as Money Flow Index reads 92.37bps, for theweeks.

NSEASI Weekly Chart Movement

The NSE’s index action retraced on a less than average traded volume and buying sentiment, which is likely to continue ahead of the Santa Claus rally, as more maturing money market funds flow into the equity market in search of higher returns.

A breakout of the 35,000 psychological and 161.8 Fibonacci retracement lines will usher in a new trend.

The market’s recovery moves and bullish trend remain intact as the index still trades above the 50 and 100-Day Moving Average on a high traded volume. The strong support level to watch out for is 33,000, a breakdown of this level will create another ‘buy’ opportunity.

However, we envisage a mixed trend in the first week of December, as players’ digest the Q3 scorecards and economic data released so far, given that MACD remains in the bullish zone on a weekly chart. The buy volume for the period stood at 100%, with total transaction index at 1.20.

Mixed Sectoral Indices

Performance indexes across sectors were largely bullish, except for the NSE Banking and Consumer Goods indices that closed 1.31% and 0.50% lower respectively, while the NSE Industrial Goods led the advancers after gaining 4.40%, followed by Oil/Gas and Insurance that closed 0.64% and 0.28% higher lower.

The general market outlook remains mixed in the short-term; following which investors should take short and medium-term positions while diversifying their portfolio along long-term trades to protect capital. This, they can do, by considering sectors with high upside potentials on the strength of earnings and policy influence. The recent market rally calls for caution as numbers from some companies and sectors were mixed as should be expected, given the negative impact of the COVID-19 pandemic and the arson that followed the #EndSARS protests on full-year results, as revealed by the macroeconomic indices.

Transactions in volume and value terms were down by 84.04% and 28.14% respectively, as investors exchanged 1.82bn shares worth N25.79bn, as against the previous week’s 11.4bn units valued at N35.8bn. Volume was driven by trades in the Financial services, Conglomerate and Consumer Goods sectors, particularly stocks like Zenith Bank, Transcorp, Access Bank, FBNH and UBA.

The best performing stocks during the week, were Neimeth Pharmaceuticals and NCR, which gained 12.03% and 10% respectively, closing at N2.70 and N1.98 each on positive sentiments and market forces. On the other hand, Japaul Oil and Honeywell Flour lost 11.11% and 10.83% respectively, at N0.24 and N1.07 per share on profit taking and market forces.

Market Outlook

We expected a mixed week, as traders and investors interpret the recent earnings reports and economic data, coupled with portfolio repositioning ahead of the December seasonal trends and expectorations. This is given that the market has seemingly ignored the news of Nigeria’s entry into a second economic recession in five years.

Meanwhile, given the persisting bull-run, profit taking is evitable, being a regular behaviour of stock markets. Any price correction at this phase of market recovery will support the upside potentials. This is especially as many fundamentally sound stocks remain underpriced, while the dividend yields of major blue-chips continue to look attractive, despite the recent weeks’ rally.