Capital Market
NGSE index turns green, as investors cautiously hedge against inflation
By Investdata Analysts
Equity prices closed higher on the Nigerian Stock Exchange (NSE) at midweek’s trading, halting the profit booking mood of investors in what was a very volatile and mixed session that signalled smart money mark-up moves across every segment, ushering in the bulls.
The seeming rebound is also a sign that investors are hedging against inflation, with income earners obviously displeased with the prevailing effects of inflation on their income, which is could threaten the subsisting low-interest regime.
The ongoing rise in stocks and oil prices are revealing the possibility of a recovery of the Nigerian economy soon, given that equity markets remain a leading indicator of happenings, especially when activities in low priced stocks continue to improve on a high traded volume and positive breadth.
However, with the market currently ranging or side trending to resist further decline, with a strong support level of 41,000 on a very high traded volume and positive breadth, we reiterate our earlier warning that traders should play with high caution. This is given the overbought state of the market and the seeming divergence of the NSE’s index action and money flow index at the close of Thursday’s trading.
Nevertheless, given the trading pattern and sharp uptrend that brought the key performance index to this current level, we once again suggest that investors should take profit in positions they have made between 15-30% so far.
Meanwhile, Wednesday’s trading started slightly on the upside and oscillated in the mid-morning to late afternoon on position taking that pushed the benchmark index to an intraday high of 41,147.72 basis points, from its lows of 41.050.20bps. Thereafter, the market closed above its opening level at 41,147.72bps.
Market technicals were positive and strong, with higher volume traded than the previous day’s in the midst of positive breadth and buying pressure as revealed by Investdata’s Sentiments Report showing 100% ‘buy,’ and a total transaction volume index of 1.28 points. Also, the impetus behind the day’s performance remained relatively strong, with Money flow index sliding to 55.84pts, from the previous day’s 53.90pts, indicating that new funds entered the market.
Index and Market Caps
At the close of midweek’s trading activities, the NSE All Share index gained 96.09 basis points, closing at 41,147.72bps after opening at 41,051.63bps representing a 0.23% rise. Similarly, market capitalization rose by N50.72bn, closing at N21.53tr, from N21.47tr on Tuesday, representing a 0.23% value gain.
Midweek’s upturn was driven by buying sentiments in MTNN, Access Bank, UBA, Zenith Bank, Lafarge Africa, Flour Mills, CAP, NNFM, Ardova, and FBNH, among others, raising Year-To-Date gain mildly to 2.18%, just as YTD gain in market capitalization stood at N417.21bn, or 2.12%.
Bullish Sector Indices
Performance indexes across the sectors were bullish, except for the NSE Banking index that closed 0.23% lower, while the insurance index led the advancers after gaining 2.52%, followed by Industrial Goods with 0.51% and others were Oil/Gas and Consumer goods that closed 0.45% and .21%
Market breadth remained positive, as advancers outnumbered decliners in the ratio of 55:16; just as transactions in volume and value terms were mixed, after investors exchange 649.65m shares, a slight drop from the previous day’s 738.52m units. Transaction value fell by 13.57% to N4.61bn, from previous day’s N5.34bn. This volume was boosted by activities in Mutual Benefits, Transcorp, Sterling Bank, Lafarge Africa and UACN Property.
NNFM and Mutual Benefits were the best performing stocks after gaining 10% each, closing at N8.90 and N0.55 per share, on earnings expectations and market sentiments. On the flip side, SUNNU Assurance and Ardova lost 9.86% and 8.63% respectively, closing at N1.28 and N18 per share, on market forces and profit taking.
Market Outlook
We expect the mixed performance, profits-taking, and bull transition to continue as the NSEASI continues to range, resisting decline, just as profit booking and buying interests in undervalued and dividend-paying stocks persist, ahead of the market’s major earnings reporting season. This is especially as low-interest rates and oil prices have so far supported the Nigerian economy and equity market. There is also the likelihood of a reversal in trend and continuation, as investors position in high yields stocks in the New Year. Also, important is the fact that technical indicators reveal overbought on the weekly and daily chart, while the RSI reads 70% and above, a situation that supports the likelihood of another correction.
However, the strong and faster recovery may continue, depending on market forces, going forward, as propelled by expected 2020 full earnings reports, while all eyes are on the outcome of next week’s MPC meeting and its outcome to give the market direction.
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.
Ambrose Omordion, Chief Research Officer, InvestData Consulting Limited