NGSE Outlook Dicey, Time To Diversify Portfolios Long-Term, Protect Capital

Market Update for the Week Ended September 18 and Outlook for Sept 21-25

By Investdata Analysts

Transactions on the Nigerian Stock Exchange for the week under review maintained a mixed performance and sentiments, slowing down the bull transition on profit taking and price adjustment for banking stocks that offered interim dividends to their shareholders even in the midst of the lingering economic uncertainty and dwindling investor and consumer confidence.

The current trading patterns and volatility have extended the sideways trending of the benchmark index for the second consecutive week as investors await positive news and policies capable of supporting or pointing to a new direction. Recall that the first tier banks had earlier inspired a rally that pushed the market to breakout the recent resistance level before the latest correction that dragged the composite index slightly lower on an above-average traded volume.

The prevailing trend on the NSE calls for cautious trading with sentiments and momentum remaining mixed on a slightly positive breadth.

Consequently, we advice discerning investors with long-term goals to look the way of stocks with high yields, when compared to those of other investment windows, considering the time-frame, especially as the current pullbacks may not linger.

Looking at companies that have surpassed market expectations in terms of earnings performance and positive sentiment in their last two quarterly results despite the pandemic should be in the interest of every investor and ahead of Q3 earnings reporting season. These expected numbers will give an insight as to companies that will likely pay dividend at the end of the current financial year end.

Market players are advised to tread carefully at this stage of the market rally to avoid a bull trap, because technical tools have earlier signaled the short-term overbought region, but are yet to confirm a deeper price correction or pullback at this time. Is this rally the BULL TRAP we have been warning about?

We wait to see this week and next, whether equity prices will confirm any new trend or direction as oil prices oscillates, even as the outlook for the rest of September remains dicey with the critical resistance level for the NSE index at 26,253.90 basis points. If the index finds resistance at this level, expect continued moderate price increases, which suggest that traders should look forward to moderate price volatility for the rest of the month.

The recent earnings forecasts in the market and actual numbers of the companies in a depressed economy struggling to find direction. Once these fundamentals are used for stock selection to build a watchlist that requires technical tools to tell the appropriate prices to buy and sell.

Movement Of NSEASI

It was a mixed trading week on the NSE, as the composite index recorded two sessions of up markets and three losses, thereby extending the two consecutive weeks of marginal decline that is slowing down market recovery.

The benchmark index started the week trading with slight gain of 0.05%, which was halted on Tuesday when the market shed 0.03% on profit taking in banking stocks. This trend was sustained at the midweek and Thursday when it lost 0.19% and 0.07% respectively on the back of selloffs in medium and high cap stocks. The down trend was reversed on Friday when the market recovered on buying interests in consumer goods stocks and others that had earlier suffered losses. This raised the week’s cumulative loss to 0.08%, as against 0.05% in the previous week.

Market data revealed that the benchmark index shed 19.38 basis points, opening at 25,591.92bps, touching an intra-week low of 25,505.27bps from its high of 25,618.65bps on markdown of share prices of stocks that declared interim dividend and profit taking ahead of this week’s payment dates for the banks. The key performance index closed for the week at 25,572.57bps, while market capitalization gained by N14.3bn, closing at N13.37tr, from the previous weekend’s N13.35tr, representing 0.10% appreciation in value. This followed the listing of additional 601.03m ordinary shares of Stanbic IBTC Holdings.

During the week, the share prices of UBA, Zenith Bank, Guaranty Trust Bank, Access Bank, Stanbic IBTC and Honeywell Flourmills were adjusted for interim and full-year dividends recommended by their respectively boards. Low and medium cap stocks dominated the top gainers’ chat, despite the fact that there were more advancers than decliners in the ratio of 32:31, even as the momentum behind the week’s performance stayed strong. Money Flow Index read 74.74bps, up from 74.65bps in the previous week.

The market’s money flow index at the end of the week formed a multiple top that signaled overbought and that correction is underway with the rate of profit taking slowing down. The candlestick formation and patterns support a continuation and pullback, which is a function of market forces, with the index testing the 50-Day Moving Average on above average traded volume. At the same time, it is trading above the 50% line of Fibonacci retracement that suggests cautious trading in the new week.

However, we envisage a resurgence of profit taking and mixed trend, given that the money flow index on a weekly time frame has formed multiple tops with MACD remaining within a bullish zone. The buy volume for the period stood at 59%, and money flow index at 74.74 points.

Bearish Sectoral Indices

The performance index across the sectors were largely bullish, except for the NSE Oil/Gas and Banking indexes closed 1.03% and 0.67% lower respectively, while the NSE Industrial goods index led the advancers with 0.50%, followed by the NSE Consumers goods and Insurance whichwere up by 0.13% and 0.01% respectively. The general market outlook in recent times remains mixed and dicey in the short-term, following which investors should diversify their portfolio with long-term trades to protect capital. This they can do especially by considering sectors such as agribusiness, healthcare, industrial goods, insurance and telecoms, which have shown the most strength.

Market activities for the week, in terms of volume and value, were mixed as volume was down by 7.32% to 1.14bn shares, compared to 1.23bn units in the previous week, while value climbed 17.07% up to N12.69bn, from the N10.84bn. Volume for the week was driven by trades in financial services, industrial goods and ICT sectors, specifically FBNH Guaranty Trust Bank, Access Bank.

Wapic Insurance and Learn Africa were the best performing stocks in the week under review, gaining 12.12% and 9.62% respectively at N0.37 and N1.14 per unit on market sentiments and forces. On the other hand, ABC Transport and NEM Insurance lost 16.67% and 9.78% respectively, closing at N0.30 and N2.03 per share on market forces and profit taking.

Market Outlook

We expect mixed trends to continue on positioning and profit taking ahead of quarter end and Q3 earnings season expected to kick off with early flier in second week of October. The hike in electricity tariff and fuel price, coupled with proposed strike will further worsen the already negative macroeconomic indices. Recall the nation’s GDP contracted by 6.1%, while inflation remains at 13.22% and PMI at 48.5 points, confirming the contraction in the economy.

Expect a pullback that will support the upside potential, especially with many fundamentally sound stocks remaining underpriced, and the dividend yield of major blue-chips continuing to look attractive in recent weeks, we expect speculative trading to shape the market’s direction, despite the seeming mixed outlook.

To position for the short to long-term, investors should target fundamentally sound, dividend-paying stocks, for possible capital appreciation in the coming months. Also, traders and investors need to change their strategies, because of the NSE’s pricing methodology, the CBN directives, and their impact on the economy in the nearest future.

Ambrose Omordion, Chief Research Officer, InvestData Consulting Limited