MARKET UPDATE FOR WEEK ENDED AUGUST 18 AND OUTLOOK FOR AUGUST 21-25, 2017

VOLATILITY STILL, AS PROFIT TAKING, FOR Q3, MONTH-END PORTFOLIO REBALANCING, ECONOMIC DATA

Trading on the floor of the Nigerian Stock Exchange last week was mixed, halting five consecutive weeks of bull-run to close lower on the strength of intense profit booking and portfolio rebalancing by market players in three straight days. So intense was the volatility and profit taking that the market did not react to the positive earnings from two first tier banks Zenith Bank and Guaranty Trust Bank, both of which had rallied since April after the Q2 numbers have been factored into their share prices.

At the same time the market was under selling pressure until the last two trading days of the week when investors took advantage of the correction to reposition in interim dividend stocks that reversed the downward trend.

Volume index on the local bourse for the week was 0.93, with buying position at 44% and 56% selling volume of the total transactions as mixed sentiment as the market witnessed improving demand for banking stocks, while Industrial and Consumer Goods suffered losses duty to profit taking in the subsectors. The recent pullback is one of dynamism in a recovering market after weeks of price rally that was supported by strong half-year corporate earnings, strong liquidity in the import and export window of the foreign exchange market that had attracted inflow into the economy at a time most stocks on the exchange remained undervalued as revealed by the NSE’s Price Earnings Ratio of 9.37x, which is also another driving factor that is attracting inflow as the exchange rate remains relatively stable.

The fear of whether there would be sustained inflow of U.S Dollar into the Nigerian stock market is gradually fading, which would be complemented by inflows from other players like the banks, oil companies and exporters will help to keep the naira stable, just as fear over President Muhammadu Buhari’s health seems to have abated following his return to the country on Saturday from London. Expectation is that the Central Bank of Nigeria (CBN) would intensify efforts to stabilize and thereafter work towards a single exchange rate regime to attract more direct and foreign portfolio investors. Data by Bloomberg reveals a net inflow of $22m to Exchange Traded Fund (ETF) between January and August 4, 2017. 

Meanwhile, the composite NSE All-Share Index for the week shed 1278.04 points to close at 36,920.56 points, from 38,198.60 points, with strong resistant above  the psychological line of 36,000 after touching low of 35,871.31 within the week. This represented a 3.35% decline on high transaction volume.
Similarly, market capitalisation for the period closed lower at N12.73trfrom an opening value of N13.17tr, representing a 3.35% value loss in investors’ portfolio.

Top performing stocks for the week were a mix of low, medium and high cap stocks, as market players cashed out gains from weeks of rallying by the market to rebalance their portfolios ahead of month end and onset of the Q3 earnings season.

Despite the mixed performance during the week, market breadth remained negative as the downturn in share prices reducedyear-to-date return of the NSE All-Share-Index (ASI)to 37.38%, just as market capitalisation stood at N3.48tr, representing a 37.62% gain from the year’s opening value.

Market breadth for the period was negative with number of decliners outpacing advancers in the ratio of 43:28 on a high volume of trades to short-live the five-week period of bull transition, despite the reversal on Thursday and Friday of the week under review. 

International markets were mixed over the past week despite the eased tension after North Korea yielded to pressure to prevent its missile testing near the U.S boundary, even as equity prices rebounded on impressive economic data, while oil price continued to oscillate.

Germany‘s DAX and Britain’s FTSE 100 were higher for the period, while  Japan’s Nikkei and U.S market indexes droppedlower, despite the positive economic data, as Conference Board’s leading index increased by 0.3% in July, after a 0.6% increase in June which suggests that the economy may experience  further improvement in the second half of the year. The news comes despite growing turmoil in the white house, where President Donald Trump’s political isolation puts  at risk his agenda to invest in infrastructure and reform the nation’s banking sector, among other things.

In Europe, the Eurozone’s economy reported 2.2% growth in Q2, beating economist and analysts’ expectations, which showed that the recovery was on track. In Asia, Japan’s economy extended its longest streak of uninterrupted growth in over a decade, although economists are still waiting for inflation to reach the BOJ’s 2% target rate.

Back home, the All-Share Index opened the week on a negative note, losing 0.65% as investors and traders took profit from the gains recorded in earlier weeks, a trend that was maintained in three trading sessions when the bourse posted 2.25% and 2.68% losses respectively, before Thursday’s rebound that was sustained on Friday when the market gained 0.59% and 1.66% respectively to reduce the week loss to 3.35%.

The NSE’s benchmark and sectoral indexes closed lower during the week, with the NSE Industrial Good and Consumer Goods recording the highest setbacks of 6.02% and 2.47% respectively, even as the NSE ASeM closed flat.

The week’s transaction, measured by aggregate volume and value, were down by 33.09% and 23.78% respectively as 1.39bn shares changed hands for N25.04bn, as against previous week’s 1.52bn units, valued at N28.9bn.

At the end of last week’s trading, Fidson Healthcaretopped the advancers’ table, chalking 9.70% to close at N3.28 per share on the back of market forces and impressive Q2 numbers; followed by Continental Reinsurance’s 6.56% gain at N1.30each also on impressive Q2 numbers. The decliners’ table on the other hand was led by Cement Company of Northern Nigeria (CCNN), which lost 13.71% to close at N9.22 on market forces, ahead of the 12.73% slideby NEM Insurance, which closed at N0.96 per share, due to profit taking. 

Market Outlook                   

The market this week is expected to continue its volatility due to profit taking and portfolio rebalancing on the strength of the Q2 numbers ahead of end the month that usher in the last month of Q3  especially as  inflation data for July and second quarter GDP figures are being awaited.  As one of the emerging markets, INVESTDATA expects the Nigerian economy and equities market to continue attracting inflow of funds as factors, given the undervalued nature of stocks and helped by the nation’s improving macroeconomic fundamentals.

Bearing all these in mind,investors should position in stages in valued stocks with high upside potentials, despite their current prices on the exchange as many are still undervalued.

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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MR. OMORDION AMBROSE

CHIEF RESEARCH OFFICER

INVESTDATA CONSULTING LIMITED

ambroseconsultants@yahoo.com

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