MARKET UPDATE AND OUTLOOK FOR THE WEEK OCTOBER 31
NSE Dips Further on Disappointing
Earnings, Weak Fundamentals
The earnings season has since kicked off and company results
are in the news. Recall that last week I told you that this season comes with disappointments
and surprises which the week under review has revealed to the investing public,
with over 70 company reports within the trading session and after close of
trade coming mixed. The disappointing
earnings were more than surprising ones in a ratio of 90:10 is almost a repeat
of second quarter performance.
This abysmal performance is attributable to the general
economic situation and other factors and the season is becoming interesting, due the to
increasing number of companies releasing their scorecards and the colour of such numbers.
Investors and traders should follow the trend and not the
one-day up and-two down that is becoming the pattern in recent times. The slow
reaction of price to the few positive numbers were due to weak fundamentals in
the market that had affected demand for stocks, interpretation of the earnings
by fund managers and analysts. At the same time, many foreign and local
investors are sitting on the sidelines due to lack of confidence in the whole
system as there is no clear direction in terms of economic policies to revamp
the economy. Worse still is the fact that some policies on the ground are
anti-recovery.
Consequently, the Composite NSE All Share Index shed 302.61
points to close last week at 27,294.21 points, from an opening figure of
27,596.82 points, representing a 1.10% decline on a relatively low volume of
trades that signals low liquidity in the market and indicates the confidence
issues that has forced many investors to remain on the fence, watching.
This is related to the fact that the earnings
reports released so far have come with disappointing performance on a weak economic
fundamental that have rubbed off on many companies and their earnings power because
these companies are operating within the system. One factor that has remained a
constant decimal in the results so far released is a drop or slow growth in
earnings, amidst foreign exchange loss, a soaring operating, marketing and
distribution expenses that resulted in an outright loss or drop in profit.
The buying volume of total transactions for the week was 48%,
while selling position was 52% to continue the previous week’s mixed
sentiments. Similarly, market capitalisation for the
period also closed lower at N9.38 trillion from N9.48 trillion, representing
1.10% depreciation in value.
During the week under review, advancers
on the log were a mixed of high, mid and low cap stocks that had released
impressive Q3 numbers, low price attraction and market forces.
The decline further pushed
the All share Index’s performance year-to-date into a more negative terrain of 4.71% from previous
week's position of -3.65%, just as market capitalisation for the same period
was down.
Market breadth for the period under
review was bearish and negative, with the number of decliners outpacing
advancers in the ratio of 41:21 on a relative low volume of trade, amidst the heavy
earnings reporting and caution trading that had continued previous week's
trend.
Global markets during the week under
review were mixed as the commodity price of oil oscillated to close the period
weak amidst commitments from Gulf OPEC members to cut production that eased
some lingering doubts about support from other producers.
The
surge in international bond yields push the dollar to three months highs
after the recent data released by US
increased chances for the anticipated year-end interest rate hike by Federal
Reserve.
All U.S markets indices, Britain’s
FTSE and Germany‘s DAX closed lower, while Japan’s Nikkei was up for the period
under review.
Specifically, in the U.S, markets were
down slightly, as demand for equities slowed down due to closeness of the
election in November and increasing probabilities of rate hike at the end of
the year as the upbeat of the latest data support the position of the Feds.
Investors and traders seem not to be
reacting to impressive earnings hitting the market, as cautious trading
and interpretation of the latest round of earnings continued with all eyes on
the coming U.S. election. The disappointing earnings report from the
technology giant- Apple also supported the current mood of sitting on the
sidelines.
Since the European Central Bank left
the monetary policy unchanged but kept the door open to more stimulus in
December, with President Mario Draghi dousing recent market speculations that
the bank may begin tapering its €1.7 trillion asset-buying programme. The currency war in the global market hit the
zone as the Euro continued to oscillate.
Investors are looking ahead to the new month for more global economic data and reports to guide their investment decisions for the year-end.
Back home, the NSE All Share Index
opened the week, trading on a marginal negative note with a loss of 0.08%, a
trend that was sustained through the second trading day, shedding 1.74%. This
was however reversed in the mid-week trading session with marginal gain of
0.07%, which was sustained till the last trading day of the week, chalking 0.43% and 0.21% respectively on
Thursday and Friday on the strength of
increasing number of earnings reports released, to close the week with a loss
of 1.10%.
However, sectoral indices closed
higher, with exception of the NSE Premium, NSE 30, NSE Banking and NSE
Insurance that depreciated by 3.53%, 0.43%, 0.44% and 0.29% respectively.
Market transaction levels for the
week, measured by aggregate volume was up marginally by 0.60%, while value
traded for same period decreased by 10.18%, in contrast to the closing levels
of the previous week, to reflect the sideline position of investors. In the week
under review, a total of 678.71 million shares valued at N6.88 billion were
exchanged in 11,808 deals, compared with 674.72 million shares valued at N7.66
billion traded across 12.290 deals in the previous week.
During
the week also, the price of Nigerian
Enarmelware Plc was adjusted for a N0.45 dividend, while a new company, Initiates
Plc was listed at 0.85 kobo under the
Alternative Securities Market. Being the last full week before the deadline for
the regulatory timeframe for submission of quarterly reports, 74 companies made
their earnings reports available to the market. Among them are: Nestle, Access
Bank, Total Nigeria, Presco, Zenith Bank, FBN Holdings and others.
Caverton
Offshore and Lafarge Africa led the advancers' table with 27.91% and 16.25%
gains respectively for the week, while the flip side was topped by Fidson and
Ashaka Cement, which suffered 16.45% and 9.65% decline respectively.
Market
Outlook
Trading activities and the benchmark
index were down last week, despite the heavy number of earnings reports that were released.
This was attributed to the mixed performance recorded in the corporate results
and weak market fundamentals that triggered the earlier cautious trading and
investing, as the numbers released are being analysed and digested by market
players.
The current trend is likely to
continue in the first week of the new month as the calibre of earnings expected
in the market this new week cannot reverse the mood in the market.
However investors should start
thinking of how to trade this disappointing and surprising numbers to
reposition their portfolios against year end.
Economic data are expected to be very
light this week, while corporate earnings reports are to continue.
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
Total,
FO, Okomu, Aiico, Zenith Bank, Eterna, UCap, Access Bank and Dangote Flour.
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