MARKET UPDATE FOR WEEK ENDED SEPTEMBER 15 AND OUTLOOK FOR SEPTEMBER 18-22

SELLING PRESSURE CONTINUE AS ‘SEPTEMBER EFFECT’ KEEP NIGERIAN MARKET DOWN

The nation’s equitymarket over the past week was volatile, closing lower as equity prices continue to decline amidstpersistent selling pressure thatreversed previous week’s gains, despite the seeming positive 0.55% Q2 GDP growth reported by the National Bureau of Statistics (NBS), as well as the seventh consecutive drop in inflation rate to 16.01% recorded in August published last Friday. Instead, although it is yet early to conclude, these seem to have disappointed expectant investors, as they may have fueledthe selling pressure during Friday’s session. Indeed more stocks suffered varying levels of decline,resulting in the market recordingthe highest daily loss in the recent weeks.

INVESTDATA sees the failure of the Nigerian Stock Exchange (NSE) All-Share index to elicit positive reaction, no matter how marginal, to these economic data as a sign that investor confidence in the nation’s economy and indeed the government is once more dropping and in need of help. It should however be remembered, just as the NBS admitted, that the improvements recorded in the GDP and Consumer Price Index (CPI) figures are too fragile for comfort, because the numbers can easily turn negative due to seeming absence of a serious strategic action plan by the government and its economic team to sustain the positive macroeconomic indices.

This is made worse by the fact that the 2017 budget which the government says is the short-term strategy leading to its medium to long-term Economic Recovery and Growth Plan (ERGP) launched in February is being poorly implemented, no thanks to its dwindling revenue base that now threatens the nation’s well-being. This situation is also coming at a time when the monetary authority is already overstretched as it works to sustain the economy with its intervention in the foreign exchange window of the Nigerian inter-bank market. Investors and experts believe that the economy cannot run for too long on one leg, no matter the amount of intervention in the FX market to relative stabilized exchange rate, hence the adoption of a wait-and-see approach, which is probably why the readmission of Nigeria in the Morgan Stanley Capital International World Index (MSCI World Index) was delayed till November to see whether the CBN can sustain the tempo as it has repeatedly promised.

The weak market on the daily and weekly time frame as mentioned in our previous updates is likely to reverse soon if the low price attraction changes the sentiment as the decreasing volumes could see the capitulation of the downtrend end as speculators return ahead of earnings season which would be positiveto confirm recovery from the recent pullbacks. Note that crude oil price in the international market broke out its downtrend line recently to hit five month high. 

Nigeria’s external reserves recently hit $33bn, at a time the recent Hurricane Harvey hit Corpus Christi and Houston, two major cities in the U.S oil producing state of Texas which naturally cut oil production output and impacted price positively as it remained above $50, thereby boosting Nigeria’s revenue helped by the peace in the Niger Delta region. The growth in reserves is also expected to help the Central Bank of Nigeria (CBN) continue its intervention in the FX market as it works towards exchange rate convergence that would attract more inflow and help sustain it to the November date given by Morgan Stanley for reclassification and admission of Nigeria into emerging market index again. The situation is further helped by the outlook that oil price would be sustained at current levels to December.  All these may support the market and economy if the government is committed to transforming the economy.

The volume index for the period under review was 0.59, with buying position at 4% and 96% selling volume of the total transaction as volatility continued ahead of Q3 end.

Meanwhile, the composite NSE All Share Index for the week shed 951.67 points to close at 35,005.57 points, from an opening figure of 35,957.24 points, representing a 2.65% decline on a low volume of transactions. There was an intra-week breakdown of the psychological line of 35,000 to low of 34,976.50 before retracing to 35,005.57 as the current support level.  Similarly, market capitalisation for the period closed lower at N12.07tr from an opening value of N12.39tr, representing a 2.63% value loss in investors’ portfolio. 

The advancers’ log for the week was dominated by low, medium and high cap stocks in a weak market thathad suffered decline as a result ofcontinued profit taking by investors and traders, thereby creating opportunities for portfolio adjustments ahead ofthe Q3 end that will usher in the last quarter of the yearwhen speculating activities are high.  

Downturn in share prices of medium and high cap stocks during the period reduced the NSEASI’s year-to-date return to 30.26%, just as that of market capitalisation stood at N2.82tr, representing a 30.51% gain from the year’s opening value.

Market breadth for the period was negative with increased number of decliners that outpaced advancers in the ratio of 45:23 on a low volume of trades to reflect investors’ await-and-see attitude, while traders seem indifferent to positive economic data.\

Stock markets around the world again were mixed over the past week, as thebreakout of the oil price downtrend line to trade above $50, amidst tension created by North Korea’sfiring of amissile over Japanese territory,just as terrorist attackedLondon. This was a major source of concern for investors, even as the global economy is expected to benefit from liquidity injection by the European Central Bank and Bank of England that will support recovery.

Back home, the composite Index opened the week with loss to closeat 0.80% down, thereby extending its negative position into the second trading session with 0.75% only to reverse into the green zone by 0.19% and 0.55% on Wednesday and Thursday respectively. However, the market dwindled by 1.84% in the last trading session of the week to record 2.65% lost for the period.

The benchmark Index and sectoral indices for the period were down except for the NSE Oil/Gas that was up by 0.17%, to close the week.

The week’s activities, measured by aggregate volume and value, were mixed as volume rose by 5.03% to 896.62mshares, which was higher thanprevious week’s 887.02mshares, while value was down by 4.10% to N15.37bn, from N17.45bn.

At the end of the week’s trading, NEM Insurance topped the advancers’ table, gaining 19% to close at N1.19 per share on the back of market forces and impressive Q2 numbers; followed by C & I Leasing, after notching 12.26% gain to close at N1.19 each on market forces and strong Q2 numbers. The decliners’ table on the other hand was led by Neimeth, which lost 15.66% to close at N0.70 on market forces and profit taking, ahead of the 11.86% drop by Skye Bank, which closed at N0.52 per share, also on market forces, even as its audited 2016 financials is still being expected by the market.

During the week, the share price of Unity Kapital Assurance and Honeywell Flourmills were adjusted for dividend recommended by their directors; just as Nigeria Enamelware announced a bonus issue of one ordinary share for every five held till close of business September 18, 2017.

The NSE lifted suspension on trading in the shares of Union DiconSalt and Fortis Microfinance after they presented their delayed financials in line with its post-listing requirement.

Market Outlook                   

Technically, the market has been weak since mid-August till last week asvolatility and market correctioncontinues due to profit booking by traders and investors who are indifferent to positive economic data released by NBS recently. This is however not unexpected given that September is a month when investors, most of who are of productive age, pay school fees for their words in schools at home and abroad. That is why this is referred as the “September effect.” Also investorsare repositioningahead of Septembermonth end and earnings season in October.  Today and tomorrow MPC meeting outcome will give more direction were the market and the economy are heading.

Bearing all these in mind, investors should position in stages in valued stocks with high upside potentials that had suffered decline in recent correction 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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