NSE Struggling to Recover Amidst Earnings Season, Weak Economic Indices

In the past seven weeks, the nation’s equity market has been struggling to recover on its own from 68 weeks ofdownturn withoutany form of stimulation from the government, especially as the economic indices are daily becoming weaker. 

It also reflects the late contraction stage of the nation's economic cycle as interest rate remains high, inflation  on the increase while industrial output is decreasing on the strength of high cost of production, unfriendly business environment and lack of policy direction.

Any market in the world that rebounds without improved macro-economic numbers would not be sustained to attain its former level, ratherit oscillates until there are measurable enhanced economic fundamentals to support it.

The global markets performance, is a reflection of investors’ concerns over mixed earnings that are been released in Stock markets across U.S and Europe, besides the economic slowdown in China. Add this to the recent warning at the just concluded World Bank/IMF (International Monetary Fund) Annual Meetings that the risk of financialcollapse is on the increase. Consequently, there were calls for effective monetary and fiscal policies if nations across the globe must stave off the imminent Great Recession. 

Meanwhile, the stock market closed in negative territory at the end of last week, despite ending last Friday in the green. The Composite NSE All-Share Index recorded a 1.10 per cent decline to close at 29,834.21 from an opening figure of 30,165.22 basis points, a difference of 331.01 points.  This pushed the year-to-date negative return to 13.92 per cent. Market Capitalisation also closed the week at N10.25 trillion from an opening value of N10.40 trillion recorded in the previous week. Similarly, all other indices for the period closed lower, exceptthe NSE Banking, NSE Insurance and NSE Oil/Gas that rose by 0.70, 2.81 and 3.75 per cent respectively. 

On the big board, the decliners outpaced advancers by 39 to 29. However the mixed performance recorded in the week revealed a relative positive and strong market breadth with reducing volume momentum as traders expect more earnings reports. 

NSEASI DAILY CHART

 

On the daily chart, the NSE ASI has formed a descending triangle pattern, still trading below its 50-day moving average as it tried to reverse after a pull-back due to profit taking. The reversal in market trend on the last trading day of the week, was as a result of a positive catalyst as market players reacted to earnings released by United Bank for Africa, Forte Oil, Trans-nationwide, Cadbury and Transcorp Hotel.  Any break out above the blue line would trigger another bull transition in a bear market.  Again, investors should take advantage of the low price to cash in on the market as more third quarter earnings hit the floor of the exchange. 

Market Outlook

We expect the market to remain in its oscillating trend as traders and investors react to earnings and other external forces. The 20 per cent fundamental of the market which comes from the performance of companies in form of earnings, is expected to impact the market positively if the results submitted beat expectation. Investors should target companies with strong earnings and growth potential to drive price and pay dividend at any market condition.

STOCKS TO WATCH

UNITED CAPITAL, NB, UBA, FBNH, FCMB, ACCESS BANK AND CAP