Index Upswing Slows Down, Amidst Cautious Trading, Asset Revaluation

Market Update for June 9

It was a mixed bag of buying and selling interests on the Nigerian Stock Exchange Tuesday, following which the benchmark All-Share index closed higher for the second consecutive session, despite the negative breadth while traders took profit from the recovery trend.

Trading on a daily basis appears to be slowing down the gaining momentum as stocks that had recorded upside movements suffered a setback on Tuesday, especially banking and oil marketing stocks which traded lower amidst caution among market players.

Technically, the market remained at its overbought region with less inflow of funds as revealed by Money flow index that is already looking down at 89.41, while the NSE index action continued to trade above the 50 day moving average and below 200 DMA on a mixed sentiment and ranging side pattern.

Meanwhile, the MACD, on the daily chart, is set to cross down the signal line to bearish zone, which points to pullback or correction at any moment from now.

Following the recovery of a sizeable chunk of the March low, valuations have changed as shown by the Price-to-Earnings ratio of 18x, which is high, supporting and confirming the technical overbought region of the market.  

Tuesday’s trading started in the green in the early hours, helped by buying interests in BUA Cement and other low priced stocks that opened high. This trend was sustained till midday before oscillating on profit taking that pushed the benchmark index to an intraday high of 25,368.78 basis points, from a low of 25,249.96bps. Thereafter, it closed higher at 25,335.15bps on a low traded volume.

The session’s market technicals were positive and mixed, while volume traded was higher  than the previous session’s, in the midst negative breadth and  mixed  sentiment as revealed by Investdata’s Daily Sentiment Report, showing a ‘buy’ position of 72% and sell volume of 28%. Total daily transaction volume index stood at 0.91, just as the energy behind the day’s performance stayed strong, with Money Flow Index reading 89.41points, flat from the previous 89.52ps, indicating thin liquidity inthe market that call for caution buying.

Index and Market Caps

The composite NSEASI, at the close of Tuesday’s session, gained a marginal 85.19bps, closing at 25,335.15ps, from the 25,250.20bps it opened, representing a 0.34% up, while market capitalisation rose by N51bn to N13.22tr from an opening value of N13.17tr, representing a 0.34% value gain.

Tuesday upturn was driven by gains recorded by BUA Cement, Dangote Sugar, BOC Gas, Prestige Assurance and Neimeth Pharmaceuticals, impacting mildly on the NSE’s benchmark index. This also reduced the NSE’s Year-To-Date loss to 5.61%, while market capitalization YTD gains stood at N272.13 bn, representing a 2.00% up from the year’s opening level.

Mixed Sector Indices

Sectoral performance indices were mixed, with the NSE Industrial Goods, Insurance and Consumer Goods indexes closing 2.65%, 1.98% and 0.26% higher respectively, while the NSE Oil/Gas index led the decliners after losing 2.26%, followed by the NSE Banking which fell 0.20% lower.

Market breadth was negative as  decliners  outnumbered advancers in the ratio of 22:13, just as activities in volume and value terms were mixed with volume traded inching up by 16.59% to 268.74m shares from the previous day 222.39m units, while value fell by 48.25% to N1.12bn from the previous session’s N2.09bn. Volume was boosted by trades in Mutual Benefits Assurance, FCMB, FBNH, UBA and Caverton.

The best performing stocks of the day, were BOC Gas and Mutual Benefits Assurance gaining 10% each, closing at N4.51 and N0.22 per share respectively on market sentiments and seeming positive earnings. On the flip side, 11 Plc and Fidson Healthcare lost 9.96% and 7.69% respectively, closing at N192.6 and N3.00 per share respectively on profit taking.

Market Outlook

The indecision noticed among traders, as well as the consolidation level will confirm the next market direction, despite position taking as traders book profit, revealing caution among market players. This also implies that opportunities are still available as sectorial rotation continues ahead of the Q2 earnings reports start hitting the market.  Also, sectors that have suffered oversold, so far, offer attractive risk-reward buy-opportunities and outlook for consideration ahead of the Q2 economic and corporate data.  

While investors digest the impact of the MPR cut from 13.5%, corporate earnings and economic activities, the MFI is showing improved institutional investors activity in the midst of the oscillating oil prices, amidst the rising new cases of the Coronavirus with the cases crossing 10,000 and deaths above 280.

However, the market’s high dividend yield continues to attract buying interests, while more audited and unaudited corporate earnings will hit the market, going forward, despite the likely continuation of selloffs. Investors are buying to increase their positions in undervalued stocks ahead of dividend declaration and Q1 numbers. This is also against the backdrop of the fact that the capital wave in the financial markets may persist in the midst of relatively low-interest rates in the money market, high inflation, and unstable economic outlook for 2020.

Also, investors and traders are positioning amidst the changing sentiments in the hope of improved liquidity and positive economic indices that may reverse the current trend. We see investors focusing on the upcoming full-year earnings season, targeting companies with strong potentials to grow their dividend on the strength of their earnings capacity.

Again, the current undervalued state of the market offers 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 going forward.

 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

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