MARKET UPDATE FOR THE WEEK ENDED OCTOBER 14

NSE IN MARGINAL RISE, AS Q3 EARNINGS SEASON KICKS OFF

Trading on the Nigerian Stock Exchange last week continued on a mixed performance, closing slightly up as a result of profit taking by investors in highly capitalized stocks that had earlier appreciated in value.

The market also reacted to corporate scorecards released within the period and the report that some banks are under-capitalized, which the Central Bank Nigeria (CBN) swiftly refuted, insisting that Nigerian banks have stronger buffer.

This statement by the apex bank greatly enhanced optimism in banking stocks, particularly during Friday's trading session after the industry had suffered losses within the period.

The consumer price index for September released by National Bureau of Statistics (NBS) showed the inflation rose further, hitting 17.9% from 17.6%.

The  Composite index  NSEASI gained 25.81 points to close last week at 27,861.03 points, from an opening figure of 27,835.22 points, representing a 0.09% growth on a relatively  average  volume of trades that signal caution by traders and investors. This may not be related to the fact that only a few  earnings reports released so far have come with mixed performance.  The buying volume of total transactions for the week was 12%, while selling position was 88% to continue the previous week’s mixed position of market players.  In the same direction, market capitalization for the period closed marginally up at N9.57 trillion from an opening value of N9.56 trillion, representing 0.09% growth. 

The disappointment and surprises of the earnings season, coupled with the uncertainties associated with this period, may be justification for the decision of investors and traders to position cautiously. The situation is compounded by the low liquidity level in the market and the economy, following which traders should set objective and trade their plans to success by knowing when to cut loss, if the expected earnings do not meet expectation.  

The top advancers on the table for the week were a mix of high, mid and low cap stocks that had suffered price decline, joined by few the market expects to post strong numbers in this earnings period. There also some stocks that traditionally pay interim dividend at this time.

The NSE All-Share Index's year-to-date is still in negative at -2.73%, just as market capitalization for the same period is down by a total of N243.23 billion, year-to-date.

Market breadth for the week under review is bearish and negative, with the number of decliners out-pacing advancers in the ratio of 42:22 on improving volume of trade, amidst a continuing bearish sentiment. 

International markets during the week under review had a mixed performance as oil price oscillated to hit its peak in recent years as a result of the production cut agreement by OPEC, some countries also battled with the reality of their currency hitting a 31- year low and earnings season weighing on sentiment. Also, mixed economic data globally within the period has not supported the market. The futures market predicts an 8.3% chance of a rate hike in November and 60% chance of even higher rates in December. International stocks reacted to diverse information.

MSCI’s broadest index of Asia-Pacific shares outside Japan closed lower as markets that make the index reacted to china's trade data and rising inflation.Added to this, the chances of Republican candidate- Donald Trump winning next month's U.S. Election is dwindling. This fact contributed to the biggest weekly loss recorded since last September. 

U.S equity markets, Britain’s FTSE and Japan’s Nikkei finished the period in red, while Germany‘s DAX closed in the green. In U.S, markets, there is uncertainty surrounding the coming election, just as minutes released by FOMC suggests a likely interest rate hike so as not to tighten employment market. The chances of hike in this last quarter of the year is increasing  and smart money that usually return to  the market  after summer are trading with caution as earnings season kicked off. 

In Europe, the statement by the governor of the Bank of England that he is not indifferent to the foreign exchange rate, supported the British Pound (£), following the recent weakness.  European Central Bank (ECB),Chief Mario Draghi, warned that the full forces of Breixt in the zone has not been felt. This, indeed, is a source of worry for investors and businesses in the region.   

In Asia, stock prices oscillated to reflect investors interpretation of trade data and commodity price movements within the week as Chinese exports fell 10% in September. But inflation appears to be on the rise to ease some concerns about the health of the world’s second largest economy. 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 with earnings season kicking off. 

Back home, the NSE ASI opened the week, trading on a positive note with a gain of 0.47%, a situation that sustained on the second trading session with a gain of 0.36%. But by midweek, it fell by a marginal 0.07%, before giving up to sell pressure on the fourth trading day when it lost 0.87%, before Friday's rebound as it rose marginally by 0.02% to close the week with a gain of 0.09%. 

The sectoral  indices finished higher during the week,  except for the NSE Main Board index, NSE Insurance, NSE Lotus  and NSE Industrial Goods that  closed in the red at 0.21%, 0.55%, 1.15%and 3.59% respectively, while the NSE ASeM unchanged.  

The market's transaction levels as measured by aggregate volume and value increased by 20.30% and 45.44% respectively, in contrast to the closing levels of the previous week. 

In the week under review, a total of 1.16 billion shares valued at N9.25 billion were exchanged in 14,992 deals, compared with 934.91 million shares valued at N6.36 billion traded across 12,352 deals in the previous week.

During the week also, the price of Cutix was adjusted for a N0.14dividend, while managements of Forte Oil and United Bank For Africa made available their third quarter earnings reports to the market. Interlink Technologies released its full year earnings report for June 30, 2016.

Caverton Offshore and Seplat  led the advancers table with 13.43% and 10.25% gains respectively for the week, while the flip side was topped by UACN Property and Lafarge Africa after they suffered 13.67% and 9.96% decline respectively.

Market Outlook                                                                                        

The market last week was up as investors and trader’s positioned for the earnings season with caution, despite the low price equities as a result of low liquidity and expected effect of the weak economy on corporate earnings. 

With more earnings reports likely to hit the market this week, we expect a continuation of the trend if the numbers beat expectations. Also the consumer price index of 17.85 percent for September is a welcome development pointing to better figures in this last quarter. 

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

The buying volume of 12% of the total traded for the week and 9% buying volume as at Friday, indicates cautious trading and mixed sentiments for the expected numbers. 

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 the market at this point and going forward.  

STOCKS TO WATCH

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

  

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Ambrose Omordion
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