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. 

Back home, the All share index opened the last full trading  week of the month on a negative note, shedding  0.12%, which  was reversed  on Tuesday with a gain of 0.05%, which was sustained and even improved upon on Wednesday , Thursday and the last trading day of the week  when trading closed up by 0.69%, 0.64% and 2.10% respectively to push the market above the latest resistant level, bringing the week’s total gain to 3.38% on strong demand, supported by renewed investors’ confidence  and improving liquidity in the fx market that is likely to attract more foreign inflow. In addition, low valuation of equities on the exchange.

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.

The week produced Uacn Property and FBN Holdings as top  advancers by gaining  25.88% and 21.95% respectively to close at N2.14 and N4.89, driven by low price attraction and market forces, while the flip side was topped by Cadbury  and Mobil Nigeria, which suffered 11.55% and 9.75% slide to close at N9.42and N284.65 each respectively.

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.
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MR. OMORDION AMBROSE
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INVESTDATA CONSULTING LIMITED
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