Market Update for the Week Ended January 24 and Outlook for Jan 27-31, 2020
Trading activities on the Nigerian Stock Exchange last week was mixed, with the benchmark All-Share index closing slightly up on a low traded volume. The NSEASI resisted decline that was triggered by profit-taking in the expectation that the Central Bank of Nigeria’s Monetary Policy Committee will vote for a change in policy stance. Instead, the committee maintained all policy parameters except the Cash Reserve Requirement (CRR) that was adjusted to 27.5% from 22.5% as part of efforts to check the country’s rising inflation level.
The prevailing low money market interest rate and declining yields in fixed income instruments due to the unconventional monetary policy stance of the CBN, which is likely to be sustained in the absence of an adjustment in Loan to Deposit Ratio. Also, the restriction placed on participation in the CBN’s Open Market Operations, which continues to push funds into the financial market and economy.
The ongoing capital wave is likely to slow down as a result of assets repricing and interpretation of the CRR hike impact on banks’ liquidity level in terms of money supply, even as more OMO investments are due to mature within the first quarter of 2020. This may be responsible for the decision by the apex bank to adjust the CRR, thereby reducing excess liquidity in the banking system.
Last week also, Unilever Nigeria, ABC Transport and Infinity Trust Mortgage Bank kicked off the 2019 full-year earnings reporting season with impressive numbers, except for the consumer goods conglomerate that presented a less-than-expected scorecard to which the market reacted immediately the results hit the market.
Nonetheless, the performance of the early filers has given an insight into what investors should expect from the respective sectors and industries that they represent.
We expect fund managers and investors to position right and protect their portfolios against any downturn while taking advantage of earnings season volatility.
Global stock markets during the week under review had a mixed performance as a result of uncertainties about the coronavirus, with the U.S stock market giving back some of its earlier gains, with all eyes set on the Purchasing Managers Index data to reveal a rebound in global manufacturing in the months ahead. The positive surprise in the data emanating from Germany, the economic powerhouse of Europe, at a time the overall PMI of the Eurozone came in better than expected. This impacted positively on European stocks.
Movement Of NSEASI
It was a mixed performance last week for the composite NSEASI, as trading extended its positive sentiment, advancing in three of the five trading sessions, at a time of increased buy interest in Industrial Goods and Services sectors.
Trading started on a positive note, gaining 0.31% on Monday, but pulled back Tuesday and Wednesday on profit-taking, with the NSE index shedding 0.84% and 0.03% respectively. There was however a rebounded on Thursday and Friday amidst the increased buying interest among investors and the positive sentiment for dividend-paying stocks as the benchmark index gained 0.47% and 0.31% respectively. The market, therefore, closed the week marginally higher than the prior week.
The NSE index opened the week at 29,618.52 basis points and touched an intra-week high of 29,732.55 basis points, from its low of 29,244.41bps on improved buying interests in Industrial Goods, Services and Oil/Gas stocks. The NSEASI closed the week at 29,628.84bps, representing a 0.03% rise in a low traded volume. Also, market capitalization rose to N15.26tr, also representing a 0.03% gain.
Low and medium-sized stocks dominated the advancers’ table as investors took profit in high cap stocks and positioned in high Dividend Yield companies amidst corporate earnings that impacted the week mildly while players traders cautiously, awaiting the MPC meeting’s outcome. The positive sentiment during the period was despite the low traded volume, even as market breadth was up, with advancers outpacing decliners in the ratio of 32:28. The energy behind the week’s performance was strong and up, as revealed by the Money Flow Index reading 75.46bps, from 70.65bps in the previous week.
The low volume of trade resulted from indecision among market players ahead of the MPC meeting’s outcome. The class of stocks that appreciated in value shows that accumulation is ongoing in expectation of better 2019 full-year earnings reports, even as there are signs of markup in dividend-paying stocks with high yields and strong earnings capacity. Also, Investdata’s Sentiment Report for the week showed a positive sentiment of 79% ‘buy’ volume, and a ‘sell’ position of 21%, on a transaction volume index of 1.02.
NSEASI Weekly Time Frame
Technically, the NSE is trying to break out a strong resistance level that may usher in continuation of trend or reversal signal in stocks at the end of the week (a bullish outside range). There are, however, very positive fundamental tailwinds for stocks that are difficult to ignore despite the expected repricing of assets in the financial market in the new week.
The positive sentiment behind the NSE Index price action and trading pattern for the week remained strong despite the mixed performance that supports a sustainable market recovery. The index touched 29,732.55bps within the period, an indication of strong inflow into the market as institutional investors and fund managers position for the first quarter of 2020 being the peak earnings season of the market.
The week’s candlestick formation indicates some level of profit-taking, which could continue depending on the interpretation of the MPC meeting outcome.
The daily and weekly candlestick patterns revealed a mixed-signal because it has formed multiple and double tops on a daily and weekly chart respectively, which suggests a pullback in the short-term. The daily chart indicates a likely break out of the recent resistance level, which will, however, depend on market forces in the new week
MACD remains bullish on the weekly chart but is turning bearish on a Daily Timeframe, with the composite NSE index sustaining an upward movement that signals continuation of recovery as demand for stocks continues to look up in the midst of profit-taking that equally supports a pullback as we enter the last trading week of January.
The NSE’s benchmark index on a weekly time frame is trading above its 50-Day Moving Average, while on a daily basis, it is trading above the 100-DMA last week on a high traded volume. The Relative Strength Index read 65.22, indicating relative strength. However, Money Flow is reading 75.46 points and looking up on the weekly chart which is an indication that funds are entering the market and individual stocks.
Mixed Sectoral Indices
The sectorial performance indexes for the week were largely bullish, except for NSE Consumer Goods and Banking sectors that closed 3.58%, and 2.57% lower respectively, while the NSE Industrial Goods Index led the advancers, after gaining 5.10%, followed by the NSE Insurance and Oil/Gas indexes that were up by 3.05% and 2.54% respectively.
Market activities in terms of volume and value for the week were down by 41.32% and 15.15% respectively, as investors exchanged 1.22bn shares worth N22.46bn, as against the previous week’s 2.09bn units valued at N26.47bn. This volume was mainly driven by trades in financial services providers, especially in Access Bank, Zenith Bank, and Guaranty Trust Bank.
The best-performing stocks for the week were Law Union & Rock Insurance and Honeywell Flourmill that topped the advancers’ chart, gaining 38% and 14.56% respectively, and closing at N0.69 and N1.18 per share on market forces and sentiment. On the flip side, NCR Nigeria and Eterna lost 18.27% and 12.58% respectively, closing at N3.31 and N3.15 per share on selloffs and profit-booking.
Being the last trading week of the month, we expect mixed performance to continue on profit-taking and end of the month trading account balance in the midst of continued repositioning by market players as more OMO investments mature to provide more funds. This is just as more liquidity finds its way to high Dividend Yield stocks with sound fundamentals, which will also be based on a seemingly positive outlook for the domestic economy, despite the mixed outlook for 2020 from various analysts.
Discerning investors, nonetheless, should take advantage of the current low stocks valuation to position for medium to long-term. It is noteworthy that the market is selling at a discount and therefore offers high upside potential.
We should, however, not overlook the possibility of a bargain-hunting motive supporting positive performance, especially with many fundamentally sound stocks remaining underpriced. With a 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.
Also, traders and investors need to change their strategies, because of the NSE’s pricing methodology, CBN directives and its impact on the economy in the nearest future.