MARKET UPDATE FOR WEEK ENDED JUNE 16 AND OUTLOOK FOR JUNE 19-23, 2017

MIXED WEEK AHEAD, AMIDST PROFIT TAKING, AS INVESTORS DIGEST ECONOMIC DATA

Trading in Nigeria’s equity market over the past week experienced strong volatility on mixed sentiments as profit taking prevail in the first two trading sessions despite positive economic data but closed higher as investors repositioned in equities that are pulling back in view of the impending Q2 earnings reporting season expected to kick-off in July.

There is also the implementation of the 2017 budget signed into law by Acting President Yemi Osinbajo,billed to begin soon. The 2017 budget is further expected to enhance the second leg by way of fiscal reform stimulus as contained in the Economic Recovery and Growth Plan (ERGP) that would go a long way to support the monetary policies of the Central Bank of Nigeria (CBN), particularly its regular intervention in the nation’s foreign exchange market. These have so far helped to drive Nigeria’s economic recovery to this time, with economic data already reflecting improvement in macro and micro-economic fundamentals.

The pullbacks in the first two days of the week eventually gave way to bullish momentum for the remaining three days, even as the National Bureau of Statistics (NBS) published a better than expected Consumer Price Index of 16.25% for the month of May within the period, from previous month’s 17.24% rate. This, further confirmed the economic recovery and impact of the CBN’s intervention, which significantly reduce the high rate of imported inflation, which has equally helped the Naira sustain its relative appreciation against major currencies of the world.

Meanwhile, the composite NSE All-Share Index for the week gained 533.88 points to close at 33,810.56 points, from an opening figure of 33,276.68 points, representing a 1.60% growth on a high volume of transactions.

As the market still remains within the rising channel, the possibility of breaking out the psychological line of 34,000 is high, despite profit taking and little setback as international investors wait for the reclassification of Nigeria in the MSCI frontier Index come Tuesday, June 20, 2017.

Should the reclassification be positive, expect more rally as the forex window that will be a major consideration for Morgan Stanley Capital International is relatively stable with improved liquidity.  The volume index for the period was 2.04 as buying position was 83%, while selling volume was 17%.

Similarly, market capitalisation for the week closed higher at N11.6tr from an opening value of N11.5tr, representing a 1.63% value gained by investors.

The advancers’ log for the week was dominated by low and medium cap stocks as investors and traders booked profit and repositioned in stocks that had pulled back and have good upside potentials, ahead of the earnings reporting season.

Appreciation in equity prices during the period further pushed the NSEASI's year-to-date return to the north by 25.81%, just as market capitalisation has grown YTD by N2.44tr, representing 26.44% gain from the year’s opening value.

Market breadth for the period was negative with the number of decliners outpacing that of advancers in the ratio of 42:38 on a high volume of trades to reflect profit taking by investors and traders.

This was as a result of investors expecting mixed performance for March year-end account and ahead of Q2 interim dividend by those companies known to regularly engage in such.

Already, the first earnings report for companies with March year-end (International Breweries) has disappointed investors by not recommending a dividend; the market has also reacted by punishing the company as can be seen from the continued nose-diving of its share price since after the release of the company’s full-year 2017 scorecard some weeks ago.

7-Up Bottling Company is likely to go the same way on the strength of it negative numbers in Q3 and calculations that the Q4 performance may not significantly change its situation well enough to make investors happy.

Meanwhile, the developed stock markets around the world were mixed over the past week, closing lower with crude oil trading at its lowest level in the last six weeks, just as the rate hike in U.S is piling pressure on equity markets as tech stocks suffered adecline.

Germany‘s DAX, Japan’s Nikkei, Britain’s FTSE 100   and U.S market indexes were down for the week. Particularly, the U.S market indexes were mixed on interest rate hike. Tech stocks suffered losses despite appreciation recorded by industrial stocks during the period, even as the U.S market struggled to maintain growth without President Donald Trump’s promised tax cut and spending programmes.

The Blomberg U.S Economic Surprise Index, which measures whether economic data beat expectations, fell below zero for the first time this year to signal potential troubles ahead.

In Europe, leaders are worried about new US sanctions on Russia which targets the country’s new gas pipeline to the continent and have threatened retaliation if the measures harm the Eurozone, especially now the region’s economy is recovering ahead of Britain’s proposed exit.

In Asia, the Bank of Japan (BOJ) at the end of it meeting last week left policy rate unchanged.  The international monetary fund boosted its forecast for China’s   growth rate to 6.7% due to policy support.

Back home, the Nigerian Stock Exchange’s All-Share Index opened the week on Monday on a negative note, losing 0.12%, which was sustain on Tuesday with a higher decline of 0.28% on a profit taking. There was a reversal during mid-week’s trading on a bull-sh momentum to gain 1.38% that was boosted by increased activity from fund managers. It retained the bull ride on Thursday through Friday, pushing the ASI to 33,810.56, bringing the week’s total gain to 1.60% on strong demand, supported by expectations.

The All-Share index and other sectoral indexes for the week were mixed to close the week higher, except for the NSE ASeM, NSE Oil/Gas, NSE Lotus II and NSE Industrial index that were down by  0.32%, 4.20%, 0.71 and 0.28% respectively.

The week’s transaction, measured by aggregate volume and value were mixed as volume traded went down by 11.61% to 2.74bn shares, as against the 3.1bn units in the preceding week, while value for the period was up by 9.8% to N32.04bn from N29.18bn a week ago.

During the week also, the share price of Beta Glass, Learn Africa, NPF Micro Finance and Newrest ASL were adjusted for dividend recommended by their directors, while eTranzact International Plc announced a dividend of 10 kobo. Also, a total of 396,793,587 ordinary shares were added to the share outstanding of Oando as a result of the debt-to-equity conversion implemented by the company.

At the end of the week’s trading, May & Baker and Skye Bank topped the advancers table with gain of 60.50% and 41.51% respectively to close at N4.56 and N0.75, driven by MoU signed by government to produce certain vaccine, while the other was low price attraction in addition to general market uptrend, while the flip side was topped by International Breweries and Forte Oil, which suffered 19.12% and 13.569% slide to close at N26.05 and N55.58 each respectively.

Market Outlook                   

The market is expected to be mixed this week as a result of  continued profit taking and investors interpretation of the inflation rate that dropped significantly in May, what it portends for the market ahead of Acting president brief on 2017 budget implementation,the expected economic rating and outlook from international rating agency Fitch. Another factor expected to play out and reflect on investor sentiments is the unstable price of oil, considering the fact that Nigeria has remained a mono-product economy like ours. Also is the expectation of more March year-end earnings reports in the market this week.

Investors at this level of the market should position in stages in value stocks with high upside potential despite the current prices of stock on the exchange. 

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,

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