NSE Index Closes Opening Week Of New Year Positive First Time In Four Years

It was indeed a superlative first week of 2018 on the Nigerian Stock Exchange (NSE) terms of performance, with the composite All-Share index chalking 1.78% to change three-year history of down market in the first trading week of a New Year as revealed by market data, that revealed down market of 13.03%, 5.63% and 2.32% in the opening week of 2015, 2016 and 2017 respectively.
This could be attributed to change in the holding structure of the market with international players and domestic institutional investors controlling the lion’s share of market activities, leaving a very small fraction of the pie to the retail investors. This factor may have paled the usual January effect into seaming insignificance. We may have to wait until the end of the month to see the effect or not of the said January effect.

Besides the continued volatility, the Nigerian equity market continues to bask under euphoria of positive factors such as the improving investor confidence and expectations of better quarterly, full-year numbers in the coming weeks judging by impressive company fundamentals. These factors have so far triggered an increasing demand for stocks by different classes of investors and traders that are positioning for the major earnings reporting season.

At the beginning of the year, asset reclassification or allocation are carried out by fund managers, following which funds are likely to flow into windows that offer quick returns within the shortest time, as Dividend Yield of many companies remain high and better that returns from other investment windows. At the moment, average yield of Nigeria’s equity market remains above 4.18%, while stocks like United Capital, Learn Africa, NPF Micro Finance and Zenith Bank with Dividend Yield above 6.38%, just like many others in the market.
Given the unstable yield or interest in money market funds, funds are likely to flow into the equity market, especially with the season for dividend payment is around the corner and many companies earnings position support a higher payout, depending on the dividend policies of different companies.

Going by the chart above, the NSE All-Share index’s action has formed a rising channel pattern that supports an uptrend, while the yellow lines show that the market is still on a bullish trend to open the year. Based on index movement and momentum behind the trend, the market’s internals remain healthy for now, while market forces in the new week will determine its next direction.
Market technicalities for the period under view were good with buying pressure at 87% and selling positions of 13%, while the week’s volume index was 1.47 of total transaction. The psychological line of 39,000 point was broken to touch highs of 39,113.68 from the low of 37,646.88 basis points. Market breadth was positive and widened to reflect the value gain of equities.

The benchmark index for the week gained 680.07 points to close at 38,923.26 points, from an opening figure of 38,243.19 points, representing a 1.78% growth on a higher volume of transactions that were driven by financial services and conglomerate stocks.
Market capitalisation for the period closed higher at N13.85tr from the opening value of N13.61tr, representing a 1.78% appreciation in investors’ positions, with low cap stocks dominating the advancers’ table. This is due to their high upside potentials and low price attractions, considering the number of quoted companies. During the week, undervalued tier 2 banking stocks recorded strong growth to top the table.
The value gain due to inter market fund movement and market players positioning in the low, medium and high cap stocks ahead of earnings season lifted the NSE ASI’s year-to-date return to 1.78%. Market capitalisation for the period grew by N240.05bn, representing a 1.78% gain from the year’s opening value.
Market breadth for the week was also positive with the advancers’ outnumbering decliners in the ratio of 56:20 on a huge volume of trades that were higher than previous week’s.

The NSE opened the week on Tuesday on a positive note with marginal gain of 0.06% to consolidate the previous trading session’s up market, which was short-lived, following the second trading day’s 0.20% slide. This was reversed on Thursday when the index gained a robust 1.28%, which was sustained on Fri day of the week when the NSE ASI gained 0.64% to bring the week gains to 1.78%. The composite NSE index and sectoral indices closed higher in the period, except for the NSE Lotus and NSE ASeM that fell by 0.82% and 1.44% respectively to close the week.

Market transaction for the week, in terms of volume and value, were up by 34.21% and 59.93% respectively to 2.42bn shares worth N18.81bn from the previous week 1.31bn units valued at N12.64 billion.

The best performing stock for the first trading week of the year were Sterling Bank and FCMB which gained 30.56% and 28.38% respectively to close at N1.41 and N1.90. This was due to low prices attraction as earnings reporting season draws closer.

The worst performing equity for the period was Mobil, which lost 12.64% to close at N170 on profit taking; followed by NEM’s 7.83% slide on profit taking to close at N1.53.

Market Outlook

This week, expect a continuation of the volatility, as more companies notify the exchange of their closed period and board meetings to approve full-year and quarterly earnings reports, profit taking amidst portfolio repositioning ahead of the new year as more positive economic data are released and earnings reporting season draw closer.
However, we would like to reiterate that investors should go for value equities, especially during this season that dividend payment is approaching.

We advise investors to allow numbers guide their decisions while repositioning for the rest of the year’s trading activities, especially now that stock prices remain volatile 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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Ambrose Omordion
CRO | Investdata Consulting Ltd
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