Amidst Losses, Better Yields, NGSE Becomes More Attractive For Positioning

Nigeria’s equity market maintained its negative stance, Thursday being the fourth back-to-back trading session of losses due to profit taking and selloffs, shedding some more of what it gained in January. The situation was driven by subsisting negative economic indices like the Purchasing Managers’ Index, which contracted for the second consecutive month in January, closing at 46.4 points, even as the nation continues to feel the ravaging effects of the Coronavirus pandemic (COVID-19), now in its second and more virulent wave.
The decline in Nigeria’s equity market is, notwithstanding, creating another entry opportunity for discerning investors as the benchmark All-Share index breaks down its strong support level of 42,000 basis points on the back of blue-chip stocks and others suffering price drops. The price corrections or pullbacks have made some of the equities become more attractive for positioning, given the noticeable improvements in their yields. This is coming ahead of the major the earnings reporting season that has been one of the major factors supporting the uptrend, despite the recent pullbacks driven by profit takers.
Also, important is the fact that speculation seem to have slowed down in the equity space, on seeming the yield improvement in the fixed income space, as market volatility continues to rise on the general decline of the key performance index and prices of stocks across all capitalisation size and sectors, except for the oil/gas that closed in the green.
However, with the expected 2020 full-year audited reports and improved dividend yields as a result of this correction, the market looks to early filers like United Capital, Africa Prudential, Zenith Bank, and Nigerian Breweries, among others, to start submitting their scorecards, beginning from next week, a situation that could change the current trend, depending on corporate action.
Thursday’s trading opened on the downside and was sustained throughout the session, closing below its seven-day moving average on continued selloffs across the various categories, pushing the NSE index to an intraday low of 41,758.03 basis points, from its highs of 42,033.76bps. Thereafter, the session closed below its opening level at 41,785.80bps on a less than average traded volume.
Meanwhile, the day’s market technicals were negative and mixed, as volume traded was higher than the previous day’s in the midst of breadth favouring the bears on high selling pressure as revealed by Investdata’s Sentiments Report showing 90% ‘sell,’ and 10% buy position. Total transaction volume index stood at 1.10 points, just as the energy behind the day’s performance remained relatively strong, with Money flow index dropping to 51.76pts, from the previous day’s 58.82pts, indicating that funds left the market as selloffs persist,
Index and Market Caps
The NSEASI at the end of Thursday lost 214.21 basis points, closing at 41,785.80bps compared to the 42,000.01bps it opened, representing a 0.51% decline. Similarly, market capitalization fell by N112.05bn, closing at N21.86 trillion, from its N21.97tr, also representing 0.51% depreciation in value.
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Thursday’s downtrend was driven by selloffs in Dangote Cement, Guaranty Trust Bank, Zenith Bank, UBA, PZ Cussons, Julius Berger Champion Breweries, Honeywell, and Fidelity Bank, among others. This impacted negatively on the market, leaving Year-To-Date gain at 3.76%, just as YTD gain in market capitalization stood at N868.01bn, or 3.86%.
Bearish Sector Indices
All the sectorial indexes were in red, save for the NSE Oil/Gas that closed 0.32% in the green, while the NSE Industrial Goods index led the decliners, shedding 1.19%, followed by the Insurance, Consumer and Banking with 1.11%, 0.31% and 0.13% lower respectively.
Market breadth turned negative, as decliners again outnumbered advancers in the ratio of 25:21; just as activities in volume and value terms were up by 24.68% and 55.56% respectively as investors exchanged 629.41m shares worth N7.98bn, from the previous day’s 504.84m units valued at N5.13bn. Volume was driven by trades in FBNH, Guaranty Trust Bank UBN, FCMB and Transcorp.
African Alliance Insurance and Guinea Insurance were the best performing stocks, as they each gained 10% at N0.22 per share, on market forces and sentiment, while on the flip side, Northern Nigerian Flour Mills and Champion Breweries lost 9.94% and 9.73%, closing at N7.88 and N3.06per share, on profit booking.
Market Outlook
We expect the market to slowdown its losing momentum and profits taking, as bargain hunters take advantage of the pullbacks to reposition their portfolios ahead of earnings expectations and reaction to numbers that would be unveiled, given that dividend yield remains relatively high. We advise that you target dividend-paying stocks and fundamentally sound companies with growth prospect in 2021, looking the way of mispriced ones, especially given the low interest rates regime and sustained oil price rally that have so far supported the economy and equity market.
There is, nonetheless, also the likelihood of a reversal in trend and continuation, as investors position in high yields stocks ahead of the earnings season. Also, important is the fact that technical indicators reveal overbought on the weekly and daily chart, while the RSI read 70 points and above, a situation that supports the likelihood of another correction.
However, the strong and faster recovery may continue, depending on market forces, going forward, as propelled by expected 2020 full earnings reports, especially now that the outcome of the MPC meeting has given the market a direction, until the next gathering in March.
The NSE’s index action and indicators are looking up in the same direction on a very high traded volume and positive buying sentiments.
Again, the current undervalued 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 in the rest of the year. By Investdata