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Volatility May Continue On Positioning, Post-Uptrend, Q3 Earnings Profit Booking



NGX Defies Odds to Post N1.4 Trillion Gain in August

Investdata Analysts

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

Following the increased buying interest and momentum on the Nigerian Stock Exchange on Monday, the benchmark All-Share index rebounded to its January trading position after seven months of positive sentiments and recovery, driven by an increase in liquidity, and low stock valuations, among others.

The rebound was despite the seeming disconnection of the market from economic realities, as funds searched for higher returns and yields.

The corporate earnings released so far have been mixed, with a few beating market expectations, even as Stanbic IBTC Holdings became the banking group to present its scorecard. The numbers were positive, despite being a mild performance, with gross earnings limping 4.1% at N183.29bn, from N176.16bn in the corresponding nine months of 2019, while profit growth was better at 19.1%, from N55.55bn in 2019 to N66.16bn, representing N5.80 Earnings Per Share, as against the previous N5.13 each recorded previously. Other results that presented were Guinea Insurance, Portland Paints and Secure Electrons, with equally mixed numbers, just as Chemical & Allied Products and Portland Paints notified the exchange of their proposed merger.

The Consumer Goods sector continues to rebound, but the expected Q3 numbers may short-live the sector’s recovery, if the negative numbers from Unilever is a fore-shadow of what should be expected.

The NSE index has formed a strong bull flag pattern, with long-term headwinds such as weak economic fundamentals, geopolitical risk and social unrest, hence, this is the time to pay a little more attention to happenings in the market. This is especially for those who have not been following the trend, with the commencement of the earnings season and the need to prepare for post-earnings reaction and portfolio reshuffling.

The increasing money inflow to the market will support a breakout and continuation of the recovery move, despite pockets of profit taking along the line. With the earnings season in top gear this week, do not forget your investment goals and exit strategies as you watch the trend.

Meanwhile, Monday’s trading opened on the upside and was sustained for the rest of the session after oscillating in the afternoon on position and profit taking which pulled the key performance index to an intraday high of 28,777.96 basis points which the market closed, from its 28,685.54bps low.

Market technicals were positive and strong as volume traded was higher than the previous session in the midst of positive breadth on strong a pressure, as revealed by Investdata’s Sentiment Report showing 100% ‘buy’ volume and 0% sell position.

Total transaction volume index stood at 0.91 points, just as the impetus behind the day’s performance remained relatively strong, with Money Flow Index printing 64.49 points, from the previous day’s 66.38 points, an indication that funds left some stocks despite the up market.

Investors Seek Safe Bets, As Q3 Earnings Influence Equity Prices Ahead Of Deadline

Index and Market Caps

At the close of Monday’s trading, the composite NSEASI gained 80.90bps, closing at 28,777.96bps after opening at 28,697.06ps, representing 0.30% gain, just as market capitalization rose by N42.28bn to N15.041tr, after opening of N14.999tr, representing 0.30% appreciation in value.

The uptrend recorded was due to position taking in Dangote Cement, Lafarge Africa, Flourmills, ETI, GSK, Custodian Investment, Cadbury, and Sterling Bank, among others. This impacted positively on the index, as Year-To-Date gains, which increased to 7.21%, while Market capitalization YTD gain to N2.08tr, or 16.08% above the year’s opening value.

Mixed IndicesThe sectorial performance indexes were largely bullish, except for the NSE Insurance and Consumer Goods that closed 0.99% and 0.34% lower respectively, while the NSE Banking led the advancers, gaining 1.01%, followed by Industrial Goods and Oil/Gas indexes which were down by 0.38% and 0.07% respectively.

Market breadth remained positive as advancers outnumbered decliners in the ratio of 27:15, while transactions in volume and value terms were up by 20.44% and 25.63% respectively, as investors exchanged 349.8m shares worth N5.56bn, as against the previous day’s 282.97m units valued at N4.43bn. This volume was driven by trades in Guaranty Trust Bank, Zenith Bank, Coronation Insurance, FBNH and UBA.

Custodian Investment and NPF Microfinance were the best performing stocks, after gaining 10% and 9.70% respectively, closing at N5.50 and N1.47 each, on earnings expectation and market forces. On the flip side, Morision Industry and Consolidated Hallmark Insurance lost 10% and 8.8% respectively, closing at N0.54 and N0.31 respectively on selloffs and profit taking.

Market Outlook

We expect this volatility to continue, as investors position and book profits from the uptrend in the midst of earnings season and expectation of more Q3 earnings reports.

The mixed intraday movement is likely to persist for the rest of October in the midst of expected earnings, profit booking, as well as the mismatched 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 mismatched policies and implementations.

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 numbers and dividend on the strength of their earnings capacity as end of the year is at the corner, considering the seasonal swing trend that are associated with the last quarter of the year.

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.

Investors Seek Safe Bets, As Q3 Earnings Influence Equity Prices Ahead Of Deadline

Ambrose Omordion, Chief Research Officer, InvestData Consulting Limited

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