A TIME TO BEWARE, AMIDST PROFIT TAKING, MONTH-END WINDOW DRESSING
MARKET UPDATE FOR THE WEEK ENDED MAY 26 AND OUTLOOK FOR MAY 30 - JUNE 2, 2017
The nation’s equity market for the week under review retraced up on
strong positive sentiments that followed the array of data and regulatory
decision that investors interpreted as capable of support ongoing economic
recovery, in addition the observed improved in market fundamentals that have
helped to attract foreign and local investors back. These investors are taking position
in the market despite profit booking among some that were trap before now and are
just attaining their breaking even point.
The significant rise in the prices of stocks above their 52-week high
shows increased confidence in the market, as a result of which liquidity is
looking up, regardless of the delay in the signing of the 2017 Appropriation Bill
into law by Acting President Yemi Osinbajo. It is however not in doubt that the
budget when signed into law would trigger the disbursement of funds to fasten
this recovery, just as the Central Bank of Nigeria (CBN) continues its
intervention in the foreign exchange market, thereby enhancing liquidity supply
to meet demand.
As we have always said, a favourable and improved operating environment would
help to drive businesses and equity prices at different times, buoyed by the
impact of better corporate earnings that beat market expectation. The recent
adjustment in the percentage of pension funds that can be invested in equities
to 30% is expected to further boost liquidity and push stock prices that meet investment
selection requirement set by pension fund administrators.
Also important to note, is the Petroleum Industry Governance Bill (PIGB)
passed into law last Thursday by the Senate, as it would impact the economy positively,
especially with its focus on local players having priority in terms of
contracts, besides empowering indigenous firms. In the process, economic growth
and development would be given the needed boost, especially as oil production
remains stable and is expected to rise steadily in the coming months, ensuring
that Nigeria reaps bountifully from the latest extension in output cut among
members and non-members of the Organisation of Petroleum Exporting Countries
(OPEC) by a further nine months. Oil price, currently in the range of $50 and $
52/barrel, will likely impact Nigeria’s financial sector by reducing the huge
pile of Non-Performing Loans (NPL) from the oil/gas industry in the books of
the nation’s banks, especially.
Meanwhile, the composite NSE All-Share Index for the week gained
951.14 points to close at 29,064.52 points, from an opening figure of 28,113.38
points, representing a 3.38% growth on a high volume of trade. The growth was
significant, when considered against previous week’s level that declined on
profit taking, resulting in a bear market. The index moved above the
psychological line of 29,000 to breakout the recent resistant level of
28,873.44 to continue the recovery move that is driven by market fundamentals.The
volume index for the period was 1.54 as buying position was 96%, while selling
was 4%.
Similarly, market capitalisation for the period closed at a new high of
N10.05trto cross the N10tr again, from an opening value of N9.72tr,
representing a 3.38% appreciation in investor’s portfolio.
The advancers’ table for the period was a mix of low and medium cap stocks as
investors and traders repositioned their portfolio along the line of value and
sectors, especially with recent 2017 Q1 GDP figures showing that the economy is
indeed on its way out of recession, despite still being in negative, added to
the improving liquidity in the foreign exchange market that had triggered growth
so far observed in the market.
Value
gained during the week further impacted the NSEASI's year-to-date gain position
to 8.15%, just as market capitalisation grew YTD by N801.12bn,
representing 8.48% gain from the year’s opening value.
Market
breadth for the week remained positive and strong as the number of advancers
outweighed decliners in the ratio of 44:25 on a high volume of trades that were
bullish, due to increasing demand for stocks as smart money marks up price again,
preparatory to dumping same on unwary and late buyers at a time pullback is
imminent. With the recovery in the economy and expected 2017 budget
implementation to drive the fiscal economic recovery plan of the government, capital
projects are likely to be the focus of Federal Government expenditure, as it
seeks to intervene significantly and quickly in the nation’s infrastructure. In
the process, structural and socio-economic reforms will boost productivity that
further support the stock market, if corporate earnings remain positive and
continue to look up in the coming quarters leading to the financial year-end.
The likely pullback as a result of end of the month profit taking may not last for
too long, due to increasing reposition ahead of March full-year and Q2 earnings reports expectations.
The international
stock markets were mixed over the past week, after oil prices had rallied
before the last OPEC meeting and slowed down with some commodity traders of the
opinion that the nine-month extension of production cuts was not enough to
stimulate higher price, following which the cartel was advised to agree on further
cuts in supply.
Japan’s
Nikkei, Britain’s FTSE 100 and US market
indexes were up for the week, while Germany‘s DAX closed lower. The US market indexes
over the period were higher despite the seeming high price to earnings as first
quarter earnings reports beat market and analysts’ expectations, with one-third
of S&P 500 companies surpassing their earnings estimates and 64% beating
sales revenue forecast for the quarter. New home sales figures for the long-term
remain firm in positive zone,but declined by 11.14% on short term, while
existing home sales fell by 2.3% to 5.57m annualized rate.
In
Europe, the European Central Bank talked down the impact of Briton’s exit from
the Eurozone economy, saying economic activities has improved to near six-year high,
just as the successful election in France that ushered in the incumbent
President Emmanuel further boost the region’s political stability to attract
more businesses and investment.
In Asia,
China’s economy was downgraded for the first time in 30 years by Moody’s rating
agency, citing concerns over the country’s rising debt profile. The rating was
lowered by one notch from Aa3 to A1 to put the country in the same category as
Japan and Israel. Japan’s consistent growth has continually attracted investors
to its market and economy.
The
composite All-Share index and all sectoral indices for the period closed
higher, except for NSE Oil/Gas that was lower by 0.89% while AseM was flat to
close the week.
The
week’s transactions, measured by aggregate volume and value were down by 17.18%
and 38.56% respectively to 1.88bn shares from 2.27bn units in the preceding
week. Value for the period stood at N20.06bn from N32.65bn last week.
During the week, the share prices of NAHCoAviance and LafargeAfrica were
adjusted for dividend recommended by their directors, while Standard Trust Assurance, Newrest ASL and Austin Laz,
released their earnings reports showing mixed performance.
Market Outlook
The market this week is likely to be mixed as profit taking by smart
traders may continue, especially being the last trading week of May that ushers
in the month of June after it had recorded month to date gain of 12.83% that
makes cashing out imminent as investors break even and others recoup their losses. Also, as investors continue to interpret and
digest the economic data in expectation of 2017 budget implementation and in the
absence of external forces to push price in form of earnings and economic data
this week.
With Friday’s trading volume index was 2.03 on 94% buying position,
while selling volume was 6%, investors at this level of the market should
position in stages in value stocks with high upside potential despite the
current bullish run in the market.
Again, the time to combine company fundamental
data and chart pattern for your trading and investing decisions is now, to enable you know the
support and the resistance levels.
Train yourself and study to know the new
approach to adopt at this point and going forward, register for the comprehensive
stock market trading and investing workshop coming up June 24,2017.
To join our webinar every Friday 8pm to 9pm,
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