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NGSE recovery to continue on inflows from maturing bills, Q3 earnings releases



NGX Defies Odds to Post N1.4 Trillion Gain in August
Market Update for the Week Ended October 16 and Outlook for Oct 19-23

By Investdata Analysts

NSE index rise, as window-dressing continues ahead of earnings season

Nigeria’s stock market maintained its bullish disposition over the past weeks amidst increasing headwinds ranging from the economic meltdown, negative macroeconomic indices, rising insecurity, and a resurgence of new coronavirus infection cases.

The new wage of Covid-19 spread has been ignored so far by youths across the country protesting against incidences of brutality, extra-judicial killings, and maiming of often innocent persons, mostly youth, by the Police Special Anti-Robbery Squad popular known as SARS.

In the face of all these, the market had mixed trends during period under review, with the NSE All-Share index closing higher, sustaining its fourth successive week of bull transition on a very high traded volume and strong buying sentiments.

During the week also, the National Bureau of Statistics (NBS) released the September Consumer Price Index (CPI) showing that inflation jumped to a 30-month high at 13.71%, rising for the 13th consecutive month since the Federal Government closed the country’s borders in August 2019. The soaring inflation further deepened the negative returns on fixed income assets and other investment windows, following which investors must invest wisely, going forward.

It is time the Federal Government and its economic managers revisit the continued border closure, given the pressure on the prices of goods and services in the absence of sufficient domestic alternatives, with those successfully smuggled into the country coming at very exorbitant cost to the end users.

Investdata believes that Nigeria’s land borders, or an integral part of it cannot remain closed, and we expect prices to drop, besides the fact that government just recently hiked electricity tariff and the pump price of fuel. Government may therefore need to revisit and think through its policy options at this time, for the low interest regime rate to drive economic recovery and make the expected impact.

The benchmark index pulled back and ranged for seven days before Friday’s spike, indicating that the market was searching for direction, or awaiting a much-needed trigger to either rise or fall. This, the expected Q3 earnings reports would provide in the new week.

Earnings season in any market across the world is an unusual time, due to the momentum associated with the period. A company can beat its earnings expectation, but offer poor guidance or projection, dragging its share price down, even as the reverse can be the case.

The other possible effect of an earnings season is that it could leave the market somewhat unchanged overall, while many individual stocks make some big moves in either direction. So far, this earnings season has been quiet on that front, with the pandemic resulting to lower expectations. However, the combination of the earnings season and the low interest rate regime in the face of a hyperinflation could lead to some big swings or surprises, particularly in individual stocks, as funds pour into equity assets.

However, the current bull-trend still remains short-term as it is driven exclusively by low interest and rising inflation. The fixed income market instruments like Treasury Bills and bonds are suffering the impact of the hyperinflation as funds flow out in search of higher returns, despite the safety offered investors. Few stocks and sectors continue to support and account for the ongoing rally. Sustainability from a long term perspective remains shaky, because the more the price rally the less the expected yield that is the attraction now.

Movement Of NSEASI

It was a mixed and ranging week of three up market and two down sessions, with the composite index opening on a negative note, recording a 0.17% loss, which was halted on Tuesday and Wednesday as the index closed flat. Thereafter, it yielded ground on Thursday, reversing midweek’s slight gains at 0.01%, before the 1.11% spike on Friday when investors rekindled their buying interests ahead of the third-quarter earnings season that kicked off the previous week as more companies release their numbers this week. This brought the   week’s cumulative gains to 0.86%, as against the previous week’s 5.3% gain.

Specifically, bargain hunting resurfaced on inflow of funds into equity assets amidst multiple headwinds, with the overall market performance indexes recording gains, after opening at 28,415,31 basis points and touched intra-week high of 28,680.87bps from its low of 28,170.72bps, after pullbacks and side trending witnessed in the last seven sessions. The key performance index closed the week at 28,659.451bps, while market capitalization gained N127bn, closing at N14.98tr, from the previous weekend’s N14.85tr, representing 0.86% value gain.

During the week, Presco Plc released its full-year 2020 forecast of N24bn top line and N6.13bn profit, representing almost 80% growth from the bottom line posted in 2019; just as the Q3 2020 numbers released by Secure Electronic Tech Plc released during the week.

Medium cap and growth stocks dominated the top gainers table during the period under review as reflected in the market breadth showing more advancers than decliners in the ratio of 35:23 on a positive sentiment and strong momentum. Money Flow Index read 100bps, up from 95.23bps in the previous week.

The NSE’s index action and candlestick formation revealed strong recovery driven by positive sentiment and strong liquidity that signals a high possibility of trend continuation, as the index is set to breakout 29,170.20bps and 30,117.10bps on renewed.

The fact that the index is trading above the 50 and 100-Day Moving Average on high traded volume, is another attraction for institutional investors, as it reveals strength in the market, just as the index is set to cross Fibonacci retracement line of 38.2% that is the next resistance level.

However, we envisage an uptrend in the midst of profit-taking and scorecards hitting the market, given that the money flow index on a weekly chart is reading 100 points, with MACD remaining in the bullish zone. The buy volume for the period stood at 96% and sell position at 4% with total transaction index at 1.51.

Volatility, Profit Taking May Slowdown, Amidst Reversal Ahead Of Q3 Earnings

Bullish Sectoral Indices

All the sectorial indexes were bullish, except for NSE Insurance that closed lower by 0.68%, while the NSE Banking index’s led the advancers after gaining 2.89%, followed by the NSE Oil/Gas that chalked 2.40%. The Consumer and Industrial goods indexes recorded 1.87%, and 0.24% gains respectively.

The general market outlook in recent times looks positive in the short-term; following which investors should take short-term and medium-term positions and diversify their portfolio along long-term trades to protect capital. This, they can do, by considering sectors with high upside potentials and strength as earnings start hitting market any moment from now.

Transactions duringthe week, in terms of volume and value, dropped by 45.22% and 63.12% respectively after investors traded 1.95bn shares worth N22.98bn, compared to the previous week’s 3.14bn units valued at N35.37bn. Volume was driven by trades in financial services, conglomerates andconsumer goods sectors, specifically UBA, Guaranty Trust Bank, Zenith Bank, Transcorp and International Breweries.

Eterna and International Breweries were the best performing stocks, gaining 34.99% and 12.92% respectively, closing at N4.90 and N5.33 each on low price attractions and market sentiments. On the other hand, E-tranzact and Portland Paints lost 26.38% and 10.31% respectively, at N1.73 and N2.00per share on market forces.

Market Outlook

We expect a continuation of trend as more inflow of funds and corporate earnings in the midst of profit taking as all eyes are on Q3 numbers that kick off with early filer Infinity Trust Mortgage Bank.

Profit taking is as old as the stock market. Any price correction at this phase of market recovery 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 despite the recent weeks rally. We expect speculative trading to shape the market’s direction.

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.

Volatility, Profit Taking May Slowdown, Amidst Reversal Ahead Of Q3 Earnings

Ambrose Omordion, Chief Research Officer, InvestData Consulting Limited


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