MARKET UPDATE FOR WEEK ENDED JULY 7 AND OUTLOOK FOR JULY 10-14, 2017

CAUTION AMID Q2 REPORTS, INFLATION, BUDGET MUSINGS WEIGH DOWN ON NSE INDICATORS

The Nigeria stock market indices were mixed during the past week as struggle for dominance continued between bear and bull on the heels of selling pressure and portfolio repositioning by smart money ahead of the earnings reporting season and release of the inflation data for the month of June by the National Bureau of Statistics (NBS), following which it caved in to pressure to close lower.

The low cap stocks outperformed the high caps in the period as the NSE Insurance appreciated to close higher.

Inflation remains a major determinant of interest rate at any time because no investor likes to invest where returns are less than the rate of inflation, just as the nation’s declining inflation rate supports interest rate cut,supported by the stock market in the short and long term if interest rate is lowered or cut in the nearest future. This will further accelerate the economic recovery that will help to sustain the positive economic data which will attract local and foreign investors to take advantage of this recovery for growth in different sectors of the economy, especially in manufacturing, agriculture, construction, banking and healthcare.

The mixed sentiments in the first trading week of the second half of the year is a reflection of cautiousness by investors as they factor in the expected numbers to the current market prices of equities, realizing that if the numbers beat expectations their valuation would rise again. However, anything short of market forecast will trigger another round of sell off.

The volume index for the period under review was 0.78 with buying position at 31% and 69% selling volume of the total transaction as volatility continued ahead of the Q2 numbers.

The composite NSEAll Share Index for the week shed 658.31 points to close at 32,459.17 points, from an opening figure of 33,117.48 points, representing a 1.99% decline on a low volume of transactions. The pullback by the market to breakdown the psychological line of 33,000 before trying to retrace up is a sign that investors are hungry for numbers and positive information. Similarly, market capitalisation for the week closed lower at N11.19tr from an opening value of N11.45tr, representing a 2.31% value loss, with the huge difference between the percentage drop in the ASI and capitalization accounted for by the voluntary delisting of Ashaka Cement. 

The advancers’ log for the week was dominated by low cap stocks after the market had suffered massive sell off in form of profit taking by investors and traders, creating opportunities for repositioning as more Q2 numbers are expected in the market any moment from now.

Price depreciation recorded by listed companies during the period reduced the NSEASI’s year-to-date return to 20.78%, just as that of market capitalisation dropped to N1.91tr, representing 20.98% gain from the year’s opening value.

Market breadth for the period was negative with the number of decliners widening and outnumbering that of advancers in the ratio of 51:16 on a low volume of trades to reflect the cautious trading by investor and traders.

Stock markets around the world were mixed over the past week, as the U.S Dollar continues to be weakened alongside the fluctuating price of oil in the international market. The geopolitical conflicts involving the face-off between Saudi Arabia, Egypt, United Arab Emirates and Bahrain on one side and Qatar accused of sponsoring terrorism at this point is not a threat to OPEC and S&P Global plats and oil producing states. In any case, global oil supply remains vulnerable to geopolitical risks and significant disruption could see price rise to $120 per barrel, especially with output from the U.S, Libya and Nigeria adding around one million barrels daily and undermining the oil cartel.  

Japan’s Nikkei was down for the period while Germany‘s DAX, Britain’s FTSE 100 and U.S market indexes were up for the week, despite the holiday that shortened trading days in the U.S. The positive labour market data from the U.S for the month of June indicated that 222,000 new jobs were created,which was higher than expected amidst the stagnated growth of just 2.5% in wages for the period.

In Europe, IHS mark it PMI showed that the regional economy likely accelerated in the three months leading up to June, which prompted speculations that the zone’s central bank would consider reducing its stimulus measures. In Asia, Chinese Premier Li Keqiang expects that his country’s economy would maintain steady and improving momentum during the second half of this year but noted that there were still various hurdles.

Back home, the All-Share Index opened the week on a negative note, losing 1.13%, which was sustained on Tuesday and Wednesday with 1.30% and 0.71% respectively. Neither Thursday’s marginal 0.05% nor the following day’s better 0.32% gain was however insufficient to pull the market out of the red zone. The decline reduced the week’s total loss to 1.99% on mixed position that ushered in bullish transition within the week.

The All-Share index and other sectoral indexes for the period were down to close the week, except for the NSE Insurance and NSE Industrial Goods which closed 1.10% and 0.225% up respectively, while the NSE ASeM closed flat.

The week’s activities, measured by aggregate volume and value were mixed as volume traded for the period was down by 9.40% to 1.06bn from the previous week 1.17bn shares, while value was marginally up by 7.33% to N12.3bn from the previous week of N11.46bn.

During the week also, the share price of Trans-nationwide Express and Presco were adjusted for recommended dividends by their directors, while Northern Nigerian Flour Mills Plc released it full-year result showing that the company closed in the red, following which it was unable, once more, to offer a dividend to shareholders, while remaining on life-support from its Flour Mills of Nigeria Plc, its majority shareholder.

At the end of the week’s trading, Cutix and Continent Reinsurance  topped the advancers table with a gain of 10.00% and 9.24% respectively to close at N2.20 and N1.30, driven by market forces and expectation of full year earnings by Cutix and Q2 numbers from Continental Re. The decliners’ side was led by May&Baker and Neimeth, which lost 25.32% and 24.13% of the week’s opening price to close at N2.88 and N0.65 each respectively as a result of profit taking ahead of Q2 numbers.

Market Outlook                   

The market is expected to be mixed as more companies are expected to release their numbers this week ahead of the inflation figure for June in the amidst of expectations that implementation of the 2017 budget would boost economy recovery. It must be noted that the failure of government to begin full implementation of the capital projects contained in the budget, while Babatunde Fashola, ex-Lagos State Governor and Minister of Power, Works and Housing continues to bicker with the National Assembly over his Ministry’s appropriation remains a source of concern yet, just as the Senate continues to heat the polity with the rumoured plans to impeach ailing President Muhammadu Buhari over the continued retention of the Ibrahim Magu, chairman of the Economic & Financial Crimes Commission (EFCC). 

The recurring distractions in the political space continues to send the wrong message to investors, a situation made worse by a terrible and even unholy combination of the fact that there remains a remnant of the Boko Haram insurgency in Nigeria’s north east zone, threat of chaos in the South East from Biafran agitators led by Nnamdi Kanu and the threat that hostilities could resume in the Niger Delta, thereby shattering the fragile peace in the oil bearing region.

This is in addition to the Executive Order on easy of doing business and the sustained intervention of the CBN in the investors/exporters window and retail market of the foreign exchange market.  

Investors at this level of the market should position in stages in value stocks with high upside potentials, 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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