MARKET UPDATE FOR THE WEEK ENDED AUGUST 12

The Nigeria Stock Exchange during the week had mixed performance to closed marginally in the red, reflecting negative sentiment among investing community amidst diminishing investor confidence in the economy and government policy. The lack of liquidity in the system and effects of the static economy on the half-year results released so far by quoted companies with more than 96% of listed companies posting numbers that are below market expectation.  The high interest rate regime has put pressure on the equity market to the level that the current low prices are not eliciting demand due to the illiquidity and the high cost of funds.  

The market always feeds on information whether positive or negative, the recent postponement of  the  release of such key economic data as Consumer Price Index, among the others to the public by the National Bureau of Statistics until August 31, has further disappointed investors who need such numbers to make decisions.  The disappointment is made worse by the fact that analysts are already projecting inflation rate for the month of July above 17.2%, which may likely be the highest in the last two decades.

At this rate, there is no doubt that the economic management team on the monetary and fiscal side should collaborate to fashion a new strategic direction to revamp the economy and usher it into the path of recovery.

One cheery news however was the decision of government at its Federal Executive Council meeting last week approved that the sum of N100bn be injected into the system.

Meanwhile, the composite NSE All-Share Index shed 178.98 points to close at 27,246.88 from an opening figure of 27,425.86 points, representing 0.65% decline on a relatively weak transaction volume. Selling volume position was 77% and buying volume of 23% last week to continue previous week's bearish trend.

Similarly, market capitalisation for the period under review closed lower at N9.36tn from an opening value of N9.42 trillion. The bearish sentiments revealed the dwindling investor confidence in the market and economy, especially with the weak corporate earnings that reflect the state of the economy as mentioned earlier. The top advancers log were a mix of small and large cap stocks that beat market estimates with their Q2 numbers and low  valuation, especially oil and gas sector stocks that reported impressive Q2 results. The NSE ASI's year-to-date as mentioned earlier returned to negative 4.87%, while market capitalisation for the same periodfell by more than N320bn.

The market breadth remained negative for the week as the number of decliners outpaced advancers in the ratio of 38:18 on weak volume of trade with mixed sentiment positions as against the previous week’s bearish sentiment of 100% sell volume. 

The international markets closed on a bullish note due to rising crude oil prices to $43.93pb, as well as strong consumer spending and positive employment data. Also there were few economic data during the week as major central banks are jump starting their economy with rate cut and stimulus packages. 

The U.S markets, Germany‘s DAX, Britain’s FTSE and Japan’s Nikkei all closed in the green. The economic data that fed the U.S markets were positive to further move the indices to record the   highest since 1999. The three major indexes hit their highest at once. It is worthy of note that such high price to earnings indicates that correction is underway.

In Europe, the zone GDP for the second quarter was in line with expectations, growing by 0.3%. Growth in the region is expected to remain slow, due to uncertainties caused by Brexit that continue to weigh on exports. Moreover, given the economic implications of Brexit, the Bank of England last week decided to loosen monetary policy by slashing rates and increasing the bond purchasing programme. The operation started off on the wrong footing as large institutions rejected offers to sell gilts to the BoE. The central bank did however note that the £52m shortfall would be purchased later during the second half of its programme. Meanwhile, sentiment remains sluggish as a recent survey showed that UK businesses are expecting lower investments and job openings as a result of Brexit.

In Asia, China's economy posted 6.7% year-on-year growth of its GDP for Q2 which signifies recovery of domestic growth and demand.The Japanese Yen saw strong gains last week, following the Bank of Japan’s monetary policy decision and expected stronger labour data.

Oil prices seemed to have gained some momentum in August following its 14% decline in July. The EIA on Wednesday reported that US oil stockpiles gained 1.1 million barrels in the prior week compared to expectations for a 1.0 million-barrel decline. Furthermore, downside risks increased, following reports that Saudi Arabia had told OPEC that its output climbed to a record high of 10.67 million bpd in July. Crude traded at a high of $43.39 prior to the data release, and sold off to reach a weekly low of $41.11/barrel following the announcement. Prices thereafter bounced to close the week at $43.9pb. Britain’s exit from the EU will slow down the global economy, thereby causing fluctuation in energy demand as Nigeria's crude production is unstable due to activities of militants in the Niger Delta region.

Back home, the NSE ASI opened the week in downward trend on the first trading day of the week, it was maintained on the second but retraced up in the  third trading sessions, but this was short-lived as it closed in the red on Thursday which continued on Friday when it shed 0.12%.

NSE sector indices were down, except for NSE Industrial goods that gained 0.66%, while NSE ASeM Index closed flat. Transaction levels as measured by aggregate volume was up by 14.29% and value decline by 17.81% in contrast to last week’s closing levels. In the week under review, a total of 1.36 billion shares valued at N10.71bn were exchanged in 18,548 deals, compared with 1.19 billion shares valued at N13.03bn exchanged across 18,548 deals in the previous trading week.

During the week also,  the share price of Pharm Deko were adjusted for  N0.15 dividend, just as two quarterly results were made available to the investing community. They are Academy Press, as well as Zenith Bank, which declared N0.25 interim dividend with closure date of August 23, while payment is 26 August 2016.

NPF Microfinnace PLC    and International Breweries , led the advancers chart with 12.22% and 5.26% gains respectively, while the flip side was topped by CAP and Sterling Bank which suffered 22.43% and 18.75% decline respectively.

Market Outlook

The market last week was down due to lack of liquidity and postponement of the release of  economic data in the face of weak  corporate earnings season that were below market  expectation. There was also the new CBN flexible exchange rate policy that threw the books of many companies that imprt raw materials and machines for production and those with foreign loans in red overnight.  But with the approved N100bn at the FEC meeting, seen as the beginning of government's effort to stimulate the economy, is expected to influence activities positively over time.

The candlestick formation pattern as at close of trading last Friday is signaling  reversal on a low volume, indicating smart money are still in the market.. However, wait for confirmation as market forces this morning on the exchange will determine the direction.

STOCKS TO WATCH

 Mobil Oil, Dangote Sugar, RedStar Express, FCMB, UBA, Eterna, Ucap, Access Bank and Champion Breweries.

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