Indicators Look To Early Fillers For Market Direction In Nigeria, Amidst Continued Volatility

Market Update for Week Ended February 9 and Outlook for Feb 12-16

Photo Caption: From left, Pai Gamde, Chief Human Resources Officer, The Nigerian Stock Exchange (NSE); Oscar N. Onyema, OON, Chief Executive Officer, NSE; Asisat Oshoala, MON, African Female Footballer of the Year; Tinuade Awe, Executive Director, Regulation Division, NSE; Mojisola Adeola, Head, Council Secretariat, NSE during Closing Gong ceremony held in her honour at The Exchange on Friday, February 9, 2018.

Trading on the Nigerian Stock Exchange moved south sharply to end last week lower, marking the second consecutive week of a down-market in 2018 after the year’s early rally that pushed many stocks to their 52-week highs. The five-day back-to-back losses were attributed to profit taking and sell-offs occasioned by panic in developed markets that were extended to other markets of the world.

During the ensuing panic sell-offs, institutional and foreign investors that positioned earlier watched keenly. It is important to note that these foreign investors who exited their positions in developed markets and economies to jump into emerging and frontier markets like Nigeria’s had long expected the ongoing corrections, particularly in the U.S, since last November.

The scenario today, is different from what actually happened in 2008 to 2009, when there was global meltdown, a financial crisis that was fundamental, unlike what is happening now, which is technical, judging by the fact that many stock markets had rallied for two to four years, with stocks hitting new all-time highs before this massive pullback as a result of sell-offs. Nigerian is one of the emerging economies and a frontier market with low valuations, after many of its stocks had become grossly undervalued arising from the five quarters of recession it exited in the second quarter of 2017. Nigeria’s travail began with the collapse of oil price to $28 per barrel, made worse by the political miscalculation, low economic activities and the unclear policy direction of government that pushed the nation down the cliff.

Today, the nation’s economic recovery has reflected on the improving market fundamentals, going by the positive data that continues to confirm the impact of the sustained intervention by the Central Bank of Nigeria (CBN) in the foreign exchange segment of the inter-bank market, to support the Naira. There is, also growing expectation that the CBN may cut rate before the end of first half of the year, a situation that may become even more compelling, if inflation rate continues its downward trend as expected in the January data which would be released by the National Bureau of Statistics (NBS), coming Wednesday.

The early fillers of full-year earnings reports are likely to start releasing their numbers this week also, knowing that stronger individual earnings will drive prices up especially with higher payout ratio.
Last week on the Nigerian Stock Exchange (NSE), the All-Share Index resisted to breakdown the psychological line of 43,000 which was becoming a new strong support level, such that any breakout could have led to 41,000 basis points.

Market technicals were weak and mixed as trading volume was huge and breadth, negative to halt the previous week’s up market.
The NSE’s composite index shed all of 1,512.07 points to close at 43,127.92 points, from an opening figure of 44,639.99 points, representing a 3.39% decline on a huge volume, which was higher than previous week’s. Transactions were driven by activities in financial services and conglomerate sectors. Similarly, market capitalisation for the period closed lower at N15.48tr from the opening value of N15.88tr, representing a 3.39% value loss for the period by investors.

The best performing stocks’ table for the week was dominated by a mix of low cap stocks from different sectors and market sentiments that had pushed some of these stocks to their 52-week-highs on a high volatility. This is despite the sell-off that subsided on Friday, to possibly give room for a rebound in this new week as earnings reporting season kicks off.

Bearish sentiments continued in the week under consideration, as market indices moved southwards due to panic sell-off and profit booking on the side of traders and investors that had recorded gains from the early rallies in low and medium cap stocks. This has reduced the NSE ASI’s year-to-date return to 12.77%. Market capitalisation growth for the period stood at N1.87tr, representing a 13.72% gain from the year’s opening value.

Market breadth for the week was negative with the decliners outpacing advancers in the ratio of 64:23 on a huge volume of trades to short-live the one week up market.
International markets were lower during the week, as the U.S was sharply down to reach levels it has not seen since before its 2016 presidential election, irrespective of strong earnings and economic data. In Europe, stocks experienced the worst sell-offs since the Brexit vote amid concerns that the European Central Bank would cut back on stimulus and raise interest rates. In Asia, Japanese stocks were among the worst performers in the world but most investors remained positive on the economy. Meanwhile China’s economy bucked the trend in the developed world with a cooling rate of inflation,

Back home, the benchmark NSE Index opened the week on a negative note and suffered losses till Friday, bringing total loss to 3.39% on panic selling and market correction wave.
The NSE index and all sectoral indices closed in red for the period, except for the NSE AseM that remained flat for the week. The NSE Premium suffered the week’s biggest decline, shedding 4.68% in one week.
Market activities for the week, in terms of volume and value were mixed as volume was up by 35.47% to 4.43bn shares from the previous week’s 3.27bn units, while value declined by 13.80% to N24.24bn from the previous week’s N28.12bn.

Linkage Assurance and Caverton topped the advancers’ table with a 25% gain and 20.97% respectively to close at N0.85 and N3.00 per share, due to market forces and possibilities of dividend payment, while Consolidated Hallmark Insurance and Skye Bank led the decliners table, losing all of 27.08% and 25.17% that they accumulated during the recent market rally to close at N0.35 and N1.07 respectively, on the back of profit taking and impact of new pricing rules. It is important to note that the fate of Skye Bank particular rallied significantly, becoming the biggest gainer for January. With the correction wave, the stock is also losing much more than it gained already, at a time it’s price rally was not backed by fundamentals, given that even its 2016 audited result for the year ended December 31, 2016, or any other since the CBN intervention.

Market Outlook
As we enter the middle of February, expect volatility and repositioning to continue while profit taking subsides as early fillers of December accounts start rolling in, just as the January inflation data.
However, we would like to reiterate that investors should not panic but go for equities with intrinsic value, especially during this season when 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
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