MARKET UPDATE AND OUTLOOK FOR OCTOBER 24

Caution Trading: NSE Indices Slide, Despite Earnings Season Onset

The continuous mixed performance of the Nigerian stock market in recent times and in particular since the onset of the Q3 earnings season a fortnight ago resulted from mixed sentiment toward corporate earnings so for released. Some of the company numbers have been below market expectation, while others were surprising and in a few cases, shocking.  

It is expected that earnings season at this period should give the market a sense of direction, regardless of the low

liquidity in the course and even in the economy that has reflected in the low volume of transactions and the reaction of price to earnings released in the week under review. 

Looking at the numbers released so far, the service companies seem to have better numbers, compared to those of manufacturing firms. This sign-posts the negative impacts of the nation's weak macroeconomic indices and the ongoing economic recession on company profits.

So far, numbers from United Bank of Africa, Wema Bank, Guaranty Trust Bank and United Capital have given an insight into what should be expected from others companies this season  in those industry yet to release their score-cards to the market

The Composite NSE All Share Index shed 264.21 points to close last week at 27,596.82 points, from an opening figure of 27,861.03 points, representing a 0.95% decline on a low volume of trades that signal caution trading and investing on the part of the investing public.  This may be related to the fact that the few earnings reports released so far have come with mixed performance on a weak economic fundamental that are likely to rub off on companies performance because these companies are operating within the system. 

The buying volume of total transactions for the week was 33%, while selling position was 67% to continue the previous week’s mixed sentiments.Similarly, market capitalisation for the period also closed lower at N9.48 trillion from N9.57 trillion, representing 0.95% depreciation in value. 

During the period under review, advancers on the table were a combination of low, mid and high cap stocks that had suffered price decline and market reaction to some earnings released. Also acquisition of stake in one major oil marketing company.

The benchmark Index’s performance year-to-date is still -3.65%, just as market capitalisation for the same period was down.

Market breadth for the week under review was bearish and negative, with the number of decliners outnumbering advancers in the ratio of 38:16 on a low volume of trade, amidst the earnings season and low liquidity to reverse the marginal gain recorded in the previous week. 

Stock markets around the world traded higher during the week under review as stronger dollar dragged down the prices of oil in the international market. The impressive earnings reports in U.S. market and economic data from China, the world's second largest economy indicates that it has stabilized on  government's huge spending and a hot property market.

MSCI, the broadest index of Asian-Pacific shares outside Japan, oscillated and closed higher as the Mexican Peso hit a six-week high after the final U.S. presidential debate ahead of the November 8 election.The economies and markets across the globe are tracking and trading with keen interest on the final outcome of the U.S election, since the whoever emerges winner at the end of the day will have influence on the global financial market. 

U.S stock markets and Britain’s FTSE were flat for the week while Japan’s Nikkei and Germany‘s DAX finished the period higher.U.S. stocks ended a choppy session slightly lower as investors digested the latest round of earnings, with the sharp drop in telecom stocks offset by gains in healthcare.

The European Central Bank left the monetary policy unchanged but kept the door open to more stimulus in December, with ECB President Mario Draghi dousing recent market speculation that the bank may begin tapering its €1.7 trillion asset-buying programme. The currency war in the global market hit the zone with the Euro trading at its lowest in recent times.  

In Asia, stocks prices were higher for the week, despite the pull back on Friday as a result of appreciation by the US$ to a seven-month high against other currencies of the world.China's gross domestic product (GDP) expanded 6.7% in the year to September, exactly in line with expectation. Private investment remained subdued with government spending and property strong.
Other data showed retail sales rising by a strong 10.7% and urban investment by 8.2%, but industrial output was disappointing, growing by only 6.1%. Also, the rise in Consumer Price Index for September is the first time in nearly five years, beating expectations to give the global equity market hope.

Back home, the NSE ASI opened the week, trading on a negative note with a loss of 0.81%, a trend that was sustained through to midweek's trading session, shedding 0.29% and 0.28% on Tuesday and Wednesday respectively. But reversed on the fourth trading day when it gained 0.44% on the strength of surprising GTBank Q3 earnings report, before Friday's flat market, to close the week with a loss of 0.95%. 

The sectorial indices closed the week in red, with exception of the NSE Industrial Goods that appreciated by 0.52%, while the NSE ASeM remained unchanged.  

Market transaction levels for the week, measured by aggregate volume and value decrease by 41.98% and 17.19% respectively, in contrast to the closing levels of the previous week, to reflect the wait-and-see mood of investors.

In the week under review, a total of 674.72 million shares valued at N7.66 billion were exchanged in 12,290 deals, compared with 1.16 billion shares valued at N9.25 billion traded across 14,992 deals in the previous week.

During the week also, the price of Guinness Nigeria Plc wasadjusted for a N0.50dividend, while the managements of Austin Laz, Unitykapital Assurance, Abbey Mortgage Bank, NCR Nigeria, Trans-nationwide, Guaranty Trust Bank, Transcorp Hotel, Cadbury, Wema Bank and Secure Electronic Tech made their Q3 earnings reports available.

Caverton Offshore and NEM led the advancers' table with 13.16% and 5% gains respectively for the week, while the flip side was topped by Cadbury and GSK, which suffered 16.21% and 14.19% decline respectively.

                                                                                                    

Market Outlook                                                                                        

The market last week was down, despite the increasing number of earnings reports that were released, due to cautious trading and investing by market players who may currently be digesting the numbers.   

This week, being the last full trading week for the month of October, it is expected that  more earnings reports would hit the market, to reverse last week's trend. This would however be possible only if the numbers beat market expectation. This week is peak of the earnings season, when companies yet to present their score-cards (before October 31) to avoid paying penalty for releasing their earnings report beyond the regulatory time frame.

Economic data are expected to be light this week.  Corporate earnings reports are coming heavy. 

The buying volume of 44% of the total traded for last Friday and selling position of 56% indicates mixed sentiments that might change this week if the expected numbers come with surprises.   

Again, the time to combine technical and fundamental analysis for your trading decisions is now, knowing the support and the resistant levels. Train yourself and study to know the new approach to adopt at this point and going forward.  

STOCKS TO WATCH

FO, Okomu, FCMB, CAP, Zenith Bank, Eterna, UCap, Access Bank and Lafarge Africa.

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