Pullbacks, Repositioning On NGSE, Amid Worsening Negative RoIs

Market Update for September 16

By Investdata Analysts

The nation’s stock market ended midweek’s trading session mixed and lower expectedly on the back of the price adjustments for interim dividend declared by United Bank for Africa, Guaranty Trust Bank and Stanbic IBTC Holdings.

We would not also rule out the impact of profit taking in insurance and manufacturing equities that further depressed the key performance index for the second consecutive days owing to sell pressure as revealed by market data and technical tools.

Since rising hyperinflation in the country would remain unchanged in the nearest future due to the economic reform policies emanating from government and its policy makers, investors should be mindful of the ongoing correction. Such policy Investdata considers inconsistent with the times and the need to boost household spending is the decision to hike electricity tariff and fuel price.

Focus should, therefore be on companies likely to benefit from the ongoing pandemic. When interest rates are low, stocks are typically seen as more attractive despite the high inflation that is threatening returns and yields.

The seeming pullback ahead of the Q3 earnings season is not bad, as it offers new opportunities to jump into positions at low prices. However, you need to know and understand the likely outcome of your equity of choice.

For example, stocks in the healthcare sector and allied industries are likely to come out with positive numbers; given the impact of government policies on the sector and the various waivers granted on their activities that are expected to positively impact h third quarter scor-cards and full year earnings.

Conversely, various factors are currently working against equities in the consumer goods sector, following which their numbers might come mixed, or even below market expectation. We therefore advise traders to tread carefully around this time.

Midweek’s trading opened flat, despite the markdown of some banking stocks and inched up at mid-morning before oscillating for the rest of session on profit taking and buy interests in low and medium cap stocks. This pushed the benchmark index to an intraday low of 25,535.41bps, from its high of 25,606.02bps, before closing lower at 25,550.31bps.

Market technicals on Wednesday were negative and weak, with volume lower than the previous session’s in the midst of breadth that favoured the bears on a selling sentiments, as revealed by Investdata’s Sentiment Report showing 79% ‘sell’ volume and buy position of 21%. Total transaction volume index stood at 0.92points, just as momentum behind the day’s performance remained relatively strong, with Money Flow Index reading 66.49. points, from the previous day’s 65.75points, an indication that funds entered slightly despite the profit booking.

Index and Market Caps

At the close of the day’s trading, the composite NSE All-Share Index shed 47.65bps, closing at 25,550.31bps, after opening at 25,597.96bps, representing 0.19% decline, just as market capitalization lost N1.16bn, closing at N13.35tr, after opening at N13.35tr.

Wedensday’s downturn was due to profit taking in Zenith Bank, Lafarge Africa, Access Bank, FBNH, UBA, ETI, Cadbury, NEM, Neimeth and Royal Exchange Assurance, among others, which impacted negatively on the index as it increased Year-To-Date loss to 4.81%, while market capitalization YTD gain dropped to N395.71bn, representing 3.04% above the year’s opening value.

Mixed Sector Indices

Performance indexes across the sectors were largely bearish, except for the NSE Oil/Gas and Consumer Goods that closed by 0.41% and 0.07% higher respectively, while the NSE Insurance led the decliners by 1.49% down, followed by Banking and Industrial Goods indexes that shed 0.58% and 0.23% respectively.

Market breadth was negative, with decliners outpacing advancers in the ratio of 19:17, while transactions in term of volume and value were down by 13.59% and 19.76% respectively, after investors exchanged 211.82m shares worth N2.42bn, as against the previous day’s 245.14m units valued at N3.01bn. This was driven by trades in FCMB, Access Bank, UBA, Zenith Bank and FBNH.

Learn Africa and Berger Paints were the best performing stocks after gaining 9.62% and 7.44% respectively, closing at N1.14 and N6.50per share on improved Q1 earnings and market forces. On the flip side, Royal Exchange Assurance and NEM Insurance lost 10% and 9.78% respectively, closing at N0.27 and N2.03 respectively on market forces and profit taking.

Market Outlook

We expect pullbacks and repositioning ahead of Access Bank’s qualification date and Thursday’s markdown of Zenith Bank’s price for the interim dividend declared by its directors, given that the August inflation data came worse than expected at 13.22% to deepen the negative returns of many investment windows. Recall that banks have kept the market above its 50-day moving average on a daily time frame, which is equally at overbought zone in the short term.

The mixed intraday movement is likely to persist as the month of September progresses in the midst of profit booking, 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.

Ambrose Omordion, CRO, Investdata Consulting Limited