Market Update for January 21, 2020
Volatility and mixed performance continued on the Nigerian Stock Exchange on Tuesday as equity prices closed lower, halting three trading sessions of bull-run on profit taking in highly capitalized stocks, especially in the banking sector, at a time the World Bank expressed pessimism in its outlook for the nation’s economy. There was also cautious trading ahead of the Central Bank of Nigeria’s two-day Monetary Policy Committee meeting which kicks off tomorrow, which also helped to dampen buying interest as investors await the meeting’s outcome.
The NSE entered the year 2020 with clear tailwinds such as low interest rates in money market instruments, a situation that has inspired the market’s YTD recovery, while removing the risk of high cost of funds that had remained one factor hampering economic productivity and growth. The CBN has set the tone for economic prosperity with its unconventional policies since the second tenor of its governor, Godwin Emefiele kicked off in June last year.
The Purchasing Managers’ Index has also shown improvements in business confidence, from a period of slow expansion, which has been visible over the past three quarters, helped by the apex bank’s actions and the continued border closure by government which triggered expansion in productivity and business activities. The good news is that confidence has returned quickly, even as the PMI is set for positive surprises.
Tuesday’s trading opened slightly on the upside in the morning and oscillated between mid-morning and midday before pulling back in the afternoon on profit taking in large cap and dividend paying stocks, especially those that rallied in recent times. However, the NSE All-Share Index touched intraday low of 29,360.13 basis points from its high of 29,723.25bps, before rising slightly and closing the day lower at 29,462.76bps on a low traded volume.
Market technicals were negative and mixed, with volume traded slightly higher than the previous sessions, even as market breadth favoured the bears, while selling pressure, as revealed by Investdata’s Sentiment Report, showed 28% ‘buy’ position and 72% ‘sell’ volume. The day’s total transaction volume index stood at 0.82, while the impetus behind the day’s performance remained strong but slightly down, with Money Flow Index reading 74.43points, from the previous 78.86ps. This is an indication that funds left the market on profit booking.
Index and Market Caps
At the end of Tuesday’s trading, the NSEASI shed 247.80bps, closing at 29,462.76bps from the 29,710.56bps, representing a 0.83% drop, just as market capitalization shed N127.64bn, closing at N15.18tr, from an opening value of N15.3tr, representing a 0.83% depreciation in value.
The downturn during the session was impacted by selloffs in Dangote Cement, Zenith Bank, UBA, Guaranty Trust Bank, UACN, BUA Cement, Access Bank, FCMB, Eterna and Arbico, among others. This impacted negatively on the NSE’s Year-to-Date gain, reducing it to 9.78%. Market capitalization, YTD, fell to N2.22tr, representing an 17.11% growth over the year’s opening value.
Mixed Sector Indices
The sectoral performance indexes were largely bullish, except for the NSE Banking and Industrial Goods Index that closed in red by 3.58% and 0.45% respectively, while the NSE Insurance index led the advancers, after gaining 0.70%, followed by the Consumer Goods and Oil/Gas with 0.34%, and 0.29% respectively.
Market breadth stayed negative, with decliners outnumbering advancers in the ratio of 16:15, while market activities were mixed, with volume traded up by 7.10% to 272.84m shares from the previous 266.95m units, while transaction value dropped by 4.34% to N3.71bn from Monday’s N4.18bn. The day’s volume was driven by trades in Zenith Bank, Access Bank, UBA, Oando and FCMB
Law Union & Rock Insurance and Unity Bank were the best-performing stocks of the day, gaining 9.09% and 6.15% respectively to close at N0.60 and N0.69 per share, on market forces and sentiments. On the flip side, Arbico and Eterna lost 9.97% and 9.72% respectively, closing at N3.16 and N3.25 on selloffs and profit-taking.
The prevailing intraday mixed trend and performance may continue in the midst of profit taking and positioning by investors taking advantage of the pullbacks, ahead of the MPC meeting, the first in 2020, and the full-year earnings reports of companies. This is also against the backdrop of the prevailing low-interest rate regime in the money market and mixed economic outlook for 2020, at a time the Presidential Economic Advisory Committee is yet to harmonize monetary and fiscal policies and give clear direction.
Also, investors and traders are positioning in anticipation of the 2019 full-year earnings reports, amidst changing sentiments in the hope of improved liquidity and positive economic indices which had pushed the market out of the bearish zone.
We see Investors focusing on the upcoming full-year earnings season, targeting companies with strong potential to grow their dividend on the strength of their earnings capacity.
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 New Year.