IN AFTERMATH OF MSCI FRONTIER INDEX REVIEW, NIGERIAN EQUITY INVESTORS BEGIN PORTFOLIO REBALANCING

MARKET UPDATE FOR NOVEMBER 14

With no shock absorber to the rescue as was the case on Monday, when core investor- Dangote Industries Limited, controlled by Africa’s richest man Aliko Dangote, sold a stake in its cement business to foreign investors in a one-off stock market deal valued at N27bn, Nigeria’s equity market on Tuesday suffered huge loss as trading succumbed to selling pressure. This was apparently triggered by the recent downgrade of the Nigerian sovereign and its financial institutions as a result of the increased total debt of the government, even as the nation’s upper legislative chamber, the Senate, on Tuesday, approved plans for a new $5.5bn borrowing to reduce the high quantum of local debt. Other factors include the government’s budget implementation style and high volatility of oil price, a key determinant of Nigeria’s revenue at a time when non-oil revenue continues to underperform, made worse by the risk exposure of the banks to Eurobond and high Non-Performing-Loans.

The rating is coming after the just concluded earnings reporting season that revealed sustained strong trend in earnings which was expected to support imminent reversal after this pullback. More positive economic data continued to grace the market, the latest was Tuesday’s Q3 2017 Consumer Confidence Index at 67.48 points, up from 64.84% in Q2, continuing its upward direction which began in Q1 2017.

Investors and traders also continued looking forward to the October inflation figures by the National Bureau of Statistics (NBS) expecting it to continue its declining rise, ahead of the last Monetary Policy Committee (MPC) meeting for 2017, which opens on Monday, the day the NBS would release the Q3 GDP figures, which report members of the MPC would likely also rely on arrive at decisions. The GDP figure is expected to reveal further growth in the economy, especially against the backdrop of the continued rise in Purchasing Managers’ Index (PMI) over the period; just as corporate earnings and other macro-economic indices remained positive.     

The Nigerian Stock Exchange (NSE) All-Share index was highly volatile on Tuesday, as  it had an interesting rally back late in the day to close above the intraday low of 36,917.60, with the highs for the day at 37,345.70, although it was  still down for the day because of the early sharp down gap. The day started out with big gap closing down, it fell sharper to touch the moving averages at resistance.  The technicals for the day was weak and negative as market breadth negative position widen.

The outcome of the semi- annual review of MSCI Frontier market Index that retained some stocks is a positive factor for the market as Fund and Portfolio Managers continue to rebalance their position, despite the removal of some companies and reclassification of others to small cap categories within the index (READ STORY HERE).

If the current improvement in corporate earnings is sustained with strong corporate governance from the quoted companies, investors can expect new additions especially from the consumer goods. 

Selling pressure rose to a high of 92% with volume index of 0.96 and buy position of 8% out of the total transactions for the day to halt the two-day bull-run on a low volume traded

Meanwhile, the benchmark NSE’s Composite Index shed 358.87 basis points to close at 36,953.41 from 37,312.23 points it opened, which represented a 0.96% decline, the biggest drop in several months. Similarly, market capitalisation was down by N124.2bn to N12.79tr from previous N12.91tr.

The downturn resulted from value loss in medium and high cap stocks like Dangote Cement, FBNH, Nestle, PZ, Dangote Sugar and Guaranty Trust Bank, reducing the ASI’s year-to-date return to 37.50%, just as YTD growth in market capitalisation stood at N3.54tr, representing a 38.31% rise above the year’s opening value.

Market breadth was negative as the number of decliners increased to outnumber advancers in the ratio of 32:12 on a low traded volume that was lower than previous day’s level.

Market activities in terms of volume and value were down by   29.13% and 88.61% respectively to 238.36m shares valued at N3.42bn from the previous day’s 336.34m units, worth N30.02bn.

Transactions in the shares of FBNH, Diamond Bank, Stanbic IBTC, Transcorp and Zenith Bank topped the volume chart.

At the end of the Tuesday’s  trading session, Vitafoam  topped the advancers’ chart, gaining 4.98% to close at N2.95 per share, on market sentiments and expectation of it full year earnings report; followed by Nahco with  4.79% notch, to close at N3.72 on market forces and impressive Q3 numbers

On the flipside, Caverton shed 9.38% to close at N1.45 on profit taking, followed by C & I Leasing with 8.81% loss, to close at N1.45 each on profit taking, proposed reconstruction and primary activity. The stock, which has remained the toast of investors since April when its price soared from 50 kobo to N2.15 each in October came under a major sell-off, going on offer at 11.15am with 11,995m units, after trading 1,230,740 shares at 11.15am, according to hints by TRW Stockbrokers.

TODAY’S OUTLOOK

On the strength of the foregoing, investors should expect volatility to continue, while selling pressure reduces amidst portfolio rebalancing, profit taking and repositioning ahead of expected economic data.

Inflation data for the month of October released by the NBS on Wednesday morning revealed a nine-consecutive monthly drop in the rate of increase, as it stood at 15.91%, boosted as usual by food inflation (READ).

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 moving up and down amidst improving company, economic and market fundamentals.
It is time to combine fundamentals and technical tools to take decision by knowing the support and resistant level to reposition or exit any position. Market is in phases know the cycles in order to manage your trading and investing risk. For stocks that should be on your shopping list to buy in this seasonality changes as the year winds down, sign up to INVESTDATA BUY AND SELL signal setup by calling 08032055467.

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CRO | Investdata Consulting Ltd
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