Market Update for October 6
By Investdata Analysts
The winds of positive sentiments and increasing bargain hunting across all classes of stocks strengthened the bull rampage on the Nigerian Stock Exchange (NSE), pushing the composite All-Share index 4.92% up, the highest daily gain in over five years on a huge traded volume and price spike across the sectors.
The 15 years of unbelievably low interest rates and undervalued market after more than two consecutive year of decline had triggered the inflow of funds to equity assets from smart money and retail investors. This has remained the major propellant of the bull-run in recent times, just as the rising inflation rate remains a threat to returns on investment across asset classes.
The seeming uptrend in crude oil prices remains a plus for the market and economy, despite the relatively low price amidst increasing economic activities in the last quarter of the year across the globe which will likely support the trend.
The earnings reporting season that kicks off next week will determine if this trend is sustainable or not, because the earnings season momentum is different from normal sessions, as investors react to the numbers, leading to revaluation of various companies and selloffs should the scorecards come below expectation.
Tuesday trading started on a gap, remaining strong throughout the day on increased buying pressure and demand for medium and high cap stocks, pushing the key performance index to an intraday high of 28,909.37 basis points after breaking out 28,000 psychological level, from its low of 27,561.51bps. Thereafter, the index closed higher at 28,909.37bps, on a huge traded volume.
Market technicals for the session were positive and strong with higher volume traded than the previous session, in the midst of breadth that favoured the bulls on a high buying sentiment, as revealed by Investdata’s Sentiment Report showing 100% ‘buy’ volume. Total transaction volume index stood at 2.53 points, just as impetus behind the day’s performance remained strong, with Money Flow Index reading 91.65 points, from the previous day’s 85.40 points, an indication that funds are entered many stocks and the market.
Index and Market Caps
At the end of Tuesday trading, the benchmark index NSEASI gained all of 1,354.88bps, closing at 28,909.37bps, after opening at 27,554.56bps, representing 4.92% growth, just as market capitalization rose by N708.14bn to N15.11tr, after opening at N14.40 trillion, which also represented 4.92% gain.
The upturn was driven by price appreciation in Dangote Cement, MTNN, Presco, Zenith Bank, NB, Stanbic IBTC, FBNH, United Capital and International Brewery. This impacted positively on the index, as Year-To-Date gains increased to 7.7%, while market capitalization YTD gain improved to N2.15tr, or 16.06% above the year’s opening value.
Bullish Sector Indices
Performance across the sectors were bullish, led by the NSE Banking with 7.48%, followed by the NSE Industrial goods with5.64% up; while the Consumer goods, Oil/Gas and Insurance climbed 2.95%, 1.15% and 0.26% higher respectively.
Market breadth remained positive with advancers outnumbering decliners in the ratio of 45:8, while transactions in volume and value were up by 24.15% and 27.89% respectively, as players exchanged 749.47m shares worth N9.5bn, as against the previous 603.93m units valued at N7.42bn. Volume was driven by trades in Zenith Bank, UBA, FBNH, Access Bank and Guaranty Trust Bank.
Presco and International Brewery were the best performing stocks of the session, as they gained 10% each, closing at N60.50 and N4.29 per share on earnings expectation and market sentiment. On the flip side, NPF Microfinance and Wapic Insurance lost 8.8% and 7.7% respectively, closing at N1.25 and N0.36 respectively on market forces and profit taking.
We expect uptrend and buying interest to continue, even as profit taking is under way amidst positioning ahead of Q3 corporate earnings season, despite the negative macroeconomic indices. This is given the further crash in money market rates, while inflation peaked at 13.22%, worsening the negative returns on many investment windows.
The mixed intraday movement is likely to persist this October in the midst of an expected profit booking, as well as the mismatch of economic policies and negative macroeconomic indices. 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 the rest of 2020 as government and its economic managers are going front and back with mismatch polices and implementation.
Also, investors and traders are positioning 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 Q3 earnings and dividend on the strength of their earnings capacity as the year last quarter is at the corner.
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.