MARKET UPDATE FOR WEEK ENDED OCTOBER 20 AND OUTLOOK FOR 23-27

INVESTORS SEEK CLEARER PICTURE OF ECONOMY, MARKET, AMIDST HOPE FOR MORE FINANCIALS

Trading activities on the Nigeria Stock Exchange (NSE) last week remained highly volatile and bearish, halting two weeks of bull transition, despite the positive economic data and increasing number of good corporate earnings released to the market during the period. This may not be unconnected to the mixed sentiments as traders and investors positioning amidst persistent profit taking, irrespective of the impressive Q3 numbers, especially from blue chips companies.

The positive Purchasing Managers Index (PMI) for the month September that was above 55 points confirmed the increasingly high productivity level in the real/manufacturing sector, added to the slow decline in inflation rate, relative stability in the Naira’s exchange rate and the 0.55% growth in the nation’s Q2 GDP rate that announce the exit of out of nation economy from recession. The corporate score-cards released have also confirmed the economic recovery and growth in the numbers been posted for the nine months of the year.

However, the ongoing geopolitical agitations, increasing attack by insurgents in the name of herdsmen, and the seemingly sluggish implementation style of the 2017 budget, despite the increasing inflow of foreign investment, among others, have remained sources of grave concern to investors. This is coming despite the sustained intervention of the Central Bank of Nigeria (CBN) in the investors and exporters window of the foreign exchange market, coupled with the improving external reserves which stood at $33.36bn on October 19, 2017 according to data available on the apex bank’s website. There is, more than ever before, the need for complementary fiscal policies to enable the CBN’s intervention achieve better results, while the economy grows at a faster rate.

Market breadth for the period under review turned negative to weaken the market’s trending ability and direction, thereby slowing down market recovery on mixed sentiments, amidst continued speculative activities and profit taking by traders and investors that dominated the week’s activities. The week also came under selling pressure that pulled back the weak rally, despite pockets of surprises in the financials released during the period.
Nevertheless, investors and traders should focus on stocks with strong earnings and are trending in the up direction on the quarterly and yearly timeframe.
The weekly volume index was 0.57, with buying position at 1% and 99% selling volume of the total transaction as volatility continued.

The composite NSE All Share Index shed 260.86 points to close at 36,587.31 points on Friday, from the week’s opening figure of 36,848.17 points, representing a 0.71% decline on a low volume of transactions. The index hit an intra-week high of 37,041.52 and low of 36,583.21 basis points. There was a breakout of the psychological line of 37,000 but was sustained to close under. Similarly, market capitalisation for the period closed at N12.59tr from the opening value of N12.68tr, representing a 0.71% value loss in investors’ portfolios.

Top performing stocks that dominated the advancers log for the week were low and medium cap stocks that had suffered decline before now, in addition to those attracting attention on the strength of their strong fundamentals and technical positions, thereby revealing buy opportunities in these stocks ahead of their second and third quarter earnings reports.
The downturn experienced during the period was as a result of profit booking on the part of speculators and smart money that are playing the quarterly earnings reporting season no at its peak. Losses suffered by low, medium and high cap stocks have impacted negatively on the NSEASI’s year-to-date return to 36.14%, just as market capitalisation for the period increased to N3.37tr, representing a 36.34% gain from the year’s opening value.Market breadth was negative as the decliners outnumbered advancers in the ratio of 34:23 on a low volume of trades which reflect that investors and traders’ wait and see the numbers before jumping into any new position.

The international stock markets were mixed over the week, after oil prices rallied and slowed down with some commodity traders expressing belief that end of the year heating period may keep the commodity’s price oscillating around the current range, before breaking out $60 in Q12018 as production cuts agreement continues to subsist.
Germany‘s DAX and Britain’s FTSE100 were lower for the week, while Japan’s Nikkei and US market indexes were up for the period, The U.S. market indexes over the period were higher, entering into record territory as the Dow Jones Industrial Average surpassed the 23,000 psychological line, despite the slower-than expected growth in the manufacturing sector. Many investors remain concerned over the market valuation that had reached 25.68x price to earnings multiple on Friday. This is the highest level since 2008 economic crises and well above the 15.68x average.
In Europe, investors have expressed concern over the slow pace of talks between Britain and the European Union ahead of Brexit.In Asia, Japan’s Nikkei 225 matched its longest winning streak ever as investors continued to buy into the country’s robust momentum.

Back home, NSE’s benchmark Index opened the week on a positive note, gaining 0.33% which was short-lived on the second trading session when it lost 0.81%, continuing at the midweek’s session with a 0.08% drop. The trend was reversed on Thursday, as the indicators closed marginally north with a gain of 0.01%, which was reversed on Friday, with the indicators recording a loss of 0.16%, bringing a total loss for the week to 0.71%, halting two preceding weeks of up market.
Cumulatively, the week ended with the All-Share Index and sectoral indices closing lower, except for the NSE Banking and NSE Pension that closed marginally higher by 0.03% and 0.02% respectively.
The week’s activities, measured by aggregate volume and value, were mixed as volume was down by 44.37% to 872.89m shares as against previous week’s 1.56bn units, while value for the period inched up by 3.85% at N14.02bn from the previous week’s N13.50 billion.

During the week International Breweries topped the advancers’ table, gaining 21.77% to close at N51.01 per share on the back of the ongoing plans to merge with its sister companies and position properly for the stiff competition in the Nigerian beer and malt market, as well as expectations for Q2 numbers. It was followed by GSK’s 14.29% notch to close at N24.00 each on market sentiments and expectations of its Q3 numbers. The decliners’ table on the other hand was led by Redstar Express, which closed 13.00% lower at N4.75 on profit taking; while AXA Mansard Insurance followed with 10.36% drop to close at N2.25 per share on profit booking by traders.
During the week also, the share price of Cutix was adjusted for dividend of 18 kobo recommended by its directors, all the earnings released during the week are already computed in the Investdata price and earnings tracking. Also notification of UACN’s the rights issue was made available to the market.

Market Outlook
As the market opens on Monday, expect volatility to continue as positioning, profit taking and more earnings reports hit the market, which would trigger more speculative activities ahead of the publication of Q3 GDP figure amidst year-end seasonality.
As we move into the final days of the earnings season, more numbers would likely be released, but one thing that is clear in the current market situation is that smart investors are accumulating and enhancing their positions in selected stocks.
Again, we advise that investors allow numbers to guide their decisions while repositioning for the rest of the year trading activities, especially now that prices of stocks are looking down amidst improving economic and market fundamentals.
It is time to use your technical tools to take decision by knowing the support and resistant level to reposition or exit any position.

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