NSE Index Up 6% In Sept. As Investors Juggle Portfolios, Eye Stocks With Potentials

September Market Roundup

By Investdata Analysts

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The nation’s equity market in September was on fire, recording a strong recovery to end the quarter and month on the green, helped by the inflow of funds, improved buying interest, and volatility that turned sentiment positive, as investors took position for the third quarter and year-end.

The period under review was bullish, with the Nigerian Stock Exchange (NSE) All-Share index recording the biggest gain in four months, to extend the bull transition for three consecutive months. In the process, the index broke out the recent resistance level of 25,327.13 basis points and the 26,000 psychological line, while remaining on the path of recovery.

The possibility of this trend continuing is high, considering the quantum of funds flowing into equity assets due to the prevailing low interest rate and yields environment, in addition to the quarterly earnings that might come mixed, reflecting the level of uncertainty in the economy.  The sectors that had performed well before now are likely to consolidate and even post better-than-expected Q3 and year end financials.

The recovery move of Nigeria’s stock market should not come as a surprise to many market players, given the preceding two years of down market that had been worsened by the outbreak of the Coronavirus pandemic that resulted in panic selloff in March, bringing the NSE index to its 11-year low. This naturally made stocks cheaper and grossly undervalued and attractive to discerning investors who took advantage. In the process, September on the NSE changed from its tradition of being a month of sell market, as investors would normally seek funds to pay school fees for their children and wards.

Despite the hitches and pressure in the foreign exchange market that led to core investors increasing their stakes in such multinationals like NB, Stanbic IBTC, Nestle, Unilever and Flour Mills with the dividend they were unable to repatriate. The month’s growth was propelled by monetary policy decisions.

During the just concluded third quarter, the NSE’s ASI gained 9.61%, following which the market closed 0.04% lower Year-to-Date, boosted by the bullish posture that gives insight as to what the year 2020 would likely end in the green, in line with INVESTDATA analysts projection at the Invest 2020 traders and investors workshop that held on December 9, 2019.

Notably, sectors of the market that recorded peak performed during the quarter and on a year-to-date basis mostly underperformed in September, except for Consumer goods, Oil/Gas and banking that recorded decline for these periods respectively.

During the month, the composite NSEASI gained 1,504.63 basis point, closing at 26,831.75bps from an opening figure of 25,327.13bps, representing a 5.96% growth, after touching an intra-month high of 26,862.21 and a low of 25,327.13 to remain above the 26,000bps psychological line, after breaking out various resistance levels during the the period. Market capitalisation for the month rose by N810.22bn, closing at N14.02tr, from an opening value of N13.21 trillion, representing 6.13% appreciation in value.

The bullish performance recorded in September resulted from positive sentiment and inflow of funds searching for higher returns that dominated trades as investors increase their positioning ahead of Q3 numbers. Noteworthy is the fact that negative economic data released within the month by the Central Bank of Nigeria (CBN) and National Bureau of Statistics (NBS) did not significantly impact the market negatively. This was because the data came in as expected, confirming the gloomy economic situation, even as inflation rate for the month of August hit its 29-month high at 13.22%, made worse by the 6.10% contraction in Q2 GDP. Also, Nigeria’s Purchasing Manager index (PMI) contracted to 46.9 points in September from 48.5 points in August.

The volatility during the period was low on high volume traded that reflected the buy market and positive sentiment during the period, resulting in 16 up market and six sessions of bear trading. Traded volume for the month was up by 26.06% to 5.95bn shares, as against the 4.72bn units recorded in the preceding month.

Market breadth for the month was positive as advancers outnumbering decliners in the ratio of 63:36, to continue a three-month bull transition with declining magnitude in loses as stock prices adjusted up sharply in the last eight sessions of the month. This was an apparent market reaction to the decision of the CBN’s Monetary Policy Committee (MPC) to cut MPR, which the members said had become necessary to observe unfolding developments in the polity. The buying volume of total transactions for the month was 98%, while volume index for the period was 0.97.

Topping the sectoral index movement table for the period were the NSE Premium and pension, which chalked 7.99%, NSEASI’s 5.96%; followed by the NSE-30 which gained 6.91%, whereas the NSE Industrial and Consumer Goods climbed 6.65% and 6.28% up respectively to occupy third and fourth positions. The NSE Banking, Oil/Gas and Insurance closed 5.59%, 5.09% and 4.83% higher respectively, reflecting market activities in their stocks.

Sectorial Index Movement In September

Best Performing Stocks

The best performing stocks was led by Eterna, which appreciated by 44.21%, galloping on the strength of market sentiments on fuel hike and low-price attraction; followed by Nigerian Breweries’ 32.42% gain; while the share price of Lafarge Africa rose 29.87% on low price attraction and improving earnings performance. UACN chalked 21.93%; and Total Nigeria, 21%;; among others.

Worst Performing Stocks

On the other hand, the worst performing stock for the period was University Press, as it lost 23.93%, due to its markdown for 15 kobo dividend and profit taking. ABC Transport Plc shed 23.08% due to its weak quarterly numbers; followed by the 22.08% drop in the price of Redstar Express; and Tripple Gee, 20%; on the back of price adjustment for 3 kobo dividend and weak numbers.

Chart view of September market.

NSE ASI MONTHLY TIME FRAME FOR September

From the above graph, notice that the NSEASI on monthly basis is trending up, forming a symmetrical triangle that reveals continuation of trend or a pullback. A breakout of this symmetrical pattern will create a new entering point for discerning traders and investors. The candlestick formation for the month supports a bull momentum, whose continuation in the new month and quarter will depend on market forces and actual performance of the expected corporate Q3 financials. As we cross over to the last quarter of 2020, for which trading kicks off on Friday with high hopes that speculators will return to play the market ahead of year-end activities and seasonality.

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 entered its last quarter to usher in 2021

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.

Ambrose Omordion, Chief Research Officer, InvestData Consulting Limited