Markets
With NGSE’s Dicey Outlook, Time To Diversify Portfolio Long-term, Protect Capital
Market Update for the Week Ended September 11 and Outlook for Sept 14-18
By Investdata Analysts
Helped by the rekindled buying interests among market players, the NSE All-Share Index closed positive in the final two trading days, despite the wide disconnect between the bull-run of the stock market and the wobbling economic realities that has been made worse by the lockdown occasioned by the outbreak of the Coronavirus (COVID-19) pandemic. The living conditions of Nigerians is bound to worsen in the coming weeks, given the mismatch of the government’s economic policies, especially the recently implemented hike in the price of petroleum motor spirit (PMS) or petrol, and electricity tariff, which could result in low productivity, increased operating costs and further economic contraction.
The recent twin increases, being the major drivers of general price and cost increase, would result in heightened inflation, even when the government’s stimulus packages are yet to reach the majority of beneficiaries.
Technically, the money flow index of the market has formed a triple top that signals a breakout or pullback in the coming week depending on the interplay of market forces, especially considering the fact that all the interim dividend banks have fixed their qualification and markdown dates for the next week.
This trend again calls for cautious trading and investing as sentiments and momentum remains mixed and on a negative breadth. Consequently, discerning investors with long-term investment goals should look the way of stocks with high yields, when compared those of other investment windows, considering the time-frame.
Looking at the companies expected to adjust their share prices next week for dividend, Access Bank looks most attractive, with its relatively high yield and gross earnings, reflecting the gradual impact of its capacity-building efforts.
Traders 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 yet to confirm a deeper price correction or pullbacks 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, trading below $40, 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 them you can expect continued moderate price increases, which suggest that players should look forward to moderate price volatility for the rest of the month.
Investdata Research has continuously emphasized the charts so as to identify any resistance or weakness related to the increase in volatility over the past 14 trading sessions. Such increasing price volatility has come to stay at least till the end of 2020, meaning that technical traders should expect huge price swings over the next few weeks and months.
Meanwhile, it is noteworthy that the new wave of earnings forecasts in the market is a welcome development, as it would further guide investors when planning and taking investment decisions, especially given the rising economic uncertainty.
Movement Of NSEASI
The market’s performance indexes for the week under the review were mixed, recording three sessions of down markets and two of gain, thereby short-living the seven weeks of bull transitions on profit taking.
The NSE’s composite All-Share index opened for the period recording a marginal 0.07% loss, which was sustained on Tuesday and the midweek, when it increased to 0.38% and 0.28%respectively on the back of selloffs in banking stocks. The negative outlook was reversed on Thursday and Friday when the market recovered on buying interests in banking and manufacturing stocks that had earlier suffered losses. This bought the week’s loss to 0.05%, as against 1.17% it gained in the previous week.
Specifically, the benchmark index shed 13.69 basis points, opening at 25,605.64bps, touching an intra-week low of 25,403.33bps from its high of 25,631.16bps on a mixed sentiment and profit taking ahead of this week’s markdown dates. The key performance index closed the week at 25,591.95bps, just as market capitalization fell by N7.15bn to N13.35 trillion, from the previous weekend’s N13.36 trillion, which also represented 0.05% value loss.
As usual, low priced and medium cap stocks dominated the top advancers’ table, despite the fact that there were more losers than gainers in the ratio of 38:123, even as the momentum behind the week’s performance stayed strong, with Money Flow Index reading 74.65bps, up from 64.79bps in the previous week.
The NSE index’s action and uptrend have slowed down on profit taking to form a candlestick pattern that support a continuation of the uptrend, 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 profit taking and mixed trend, as 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 83%, and money flow index at 74.65 points.
Bearish Sectoral Indices
The sectorial performance indexes were largely bearish, except for the NSE Industrial goods that closed marginally higher by 0.0.35%, while the NSE Banking index led the decliners with 2.69%, followed by the NSE Oil/Gas’ 1.25%, while the NSE Insurance and consumer goods which lost 0.66% and 0.27% 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, 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 down by 44.34% and 1.09% respectively to 1.23bn shares worth N10.84bn, from the previous week’s 2.21bn units valued at N10.96bn. Volume for the week was driven by trades in financial services, conglomerates and consumer goods stocks, especially Custodian Investment, Zenith Bank, UBA, Transcorp and FBNH. .
Etena and C & I Leasing were the best performing stocks in the week under review, gaining 28.85% and 11.116% respectively, closing at N2.68 and N4.00 per unit on market sentiment and forces. On the other hand, Royal Exchange Assurance and Consolidated Hallmark Insurance lost 15.15% and 14.71% respectively, closing at N0.28 and N0.29 per share on market forces and profit taking.
Market Outlook
We expect mixed sentiments and trends to continue on position and profit taking ahead of August inflation data release. 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 12.82% 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