Reversals Ahead On NSE, Amid Low Prices, More Earnings Reports, Positive Economic Indices, Position Taking

Market Update for Week Ended March 16 and Outlook for March 19-23

The equity market in the past week closed lower to halt two consecutive weeks of recovery trend, despite the combination of earnings surprises from quoted companies, improving consumer confidence level and the outpouring of positive economic data into the Nigerian Stock Exchange (NSE).

The continued negative sentiments for the ongoing earnings season so far is a great disappointment for market players, especially traders that had positioned for capital gains on the strength of market reactions to released numbers, but so far it had been a different story. The sad reality has been that share price of companies posting positive Q4 numbers with high dividend payouts have continued to nosedive, thereby propelling high volatility in the market, just as optimism among traders in the season and numbers released so far is fading away. On the last trading day of the week, it seems, the market was beginning to react less negatively to positive earnings as supply from market makers and other players continued to becloud the market which is currently suffering from weak demand side as a result of low liquidity and panic selling to cut losses for traders that position in expectation of corporate earnings.

Also, there is the absence of fresh funds from the foreign investors and institutional investors such as Pension Fund Administrators (PFA) entering the market at this point, despite the impressive numbers and high Dividend Yields; as fixed income securities, especially bond and other money market rates are declining. The expected rate cut is in sight, with a continued decline in the consumer price index, when the Senate finally screens two deputy governors of the Central Bank of Nigeria (CBN) and four Monetary Policy Committee (MPC) members before the end of March 2018. As Godwin Emefiele, the CBN Governor said last week, the MPC meeting is likely to hold in the first week of April to give monetary policy framework and guidance for the second quarter of the year. Thisday newspapers on Monday reported the CBN as fixing the MPC meeting for April 3 and 4, 2018. This follows the high interest rate militating against activities that will further drive the expected economic growth, which is also influencing prices on the NSE, considering the current low valuation in the market.

The impressive full year earnings reports from Zenith Bank, Guaranty Trust Bank and Stanbic IBTC released to the market during the week under review have however elicited a declining pattern in their stock price performances, just like the earlier numbers released before then, except for Stanbic that move to a new 52-week high.
The pullback in the market is a function of confidence in the economy, especially as this is a pre-election year, a situation that has reflected in the disagreements over the proposed change in the election time table given by the umpire- Independent National Electoral Commission (INEC). This is not forgetting the delayed approval of MPC members by the Senate, just as the 2018 budget, with the Presidency and National Assemble foot-dragging on major issues. The S&P’s recent affirmation of the nation’s ‘BB’ rating and stable outlook on the strength of increased in crude oil production and price, sustained expansion of Nigeria’s manufacturing sector and the CBN’s foreign exchange intervention policy that is propelling the economic recovery, just as it warned about the nation’s increasing deficit (READ).

Meanwhile, the NSE’s composite All-Share index pullback to breakdown the recent strong support level of 42,000 on a strong negative sentiment to 41,935.93 with low traded volume after touching the week high of 43,228.94 basis points from low of 41, 741.34bp. This situation may be linked to major market players discounting of the numbers even before they hit the market and the CBN’s recent guideline for dividend payment by banks.

Market technicals for the period were negative and mixed as traded volume was low on negative market breadth and strong selling pressure of 88% and buying volume at 12% of the week’s total transaction to halt a two-week positive market performance.
The All Share Index for the period shed 1,231.93 points to close at 41,935.93 points, after opening from 43,167.86 points, representing a 2.85% decline on a relatively low volume, which was lower than previous week’s. Similarly, market capitalisation lost all of N506 billion to close lower at N15tr from its opening value of N15.51tr, representing 3.26% value loss. Within the period Africa Prudential’s share price was adjusted for dividend of N0.40.

The negative sentiments in the market was maintained during the period with increased selling positions targeted at low, medium and high cap stocks, with particular attention on Fidelity Bank, FBNH, Zenith Bank and Japual Oil, among others. With anticipation of more numbers, there is the high possibility of the results beating estimates as we have seen so far. Loss within the period impacted negatively on the NSE’s year-to-date returns which dropped to 9.66%, even as market capitalisation growth for the period fell to N1.64tr, representing a 10.12% gain from the year’s opening value.

During the week, low cap stocks were dominant on the top advancers table as best performing equities. These are low price stocks with positive market sentiment, with high possibility of dividend payment. Transactions were driven by activities in the financial services, consumer goods and Oil/Gas sectors, even as market breadth was negative with decliners outnumbering advancers in the ratio of 60:25 on a low volume of trades to short-live the two-week bull run.

The market was down and mixed for the period as the NSEASI kicked off on a negative note with loss of 0.26%, which was marginally reversed on the second trading day with a flat gain of 0.04%, pulling back at the end of midweek trading when it shed 0.54%. This was sustained on Thursday with 1.53% loss which was extended till last trading day of the week when the index shed another 0.59%, bringing total loss to 2.85% as traders and investors were disappointed by the negative reaction to positive earnings hitting the market.
The NSE index and all sectoral indices closed in red for the period, except for NSE Insurance that was green with 0.25%. Market activities in volume and value were down by 20.78% and 8.33% to 2.44bn shares worth N36.66bn from the previous week 3.08bn units valued at N39.99bn.

The best performing stocks during the week, were ABC Transport and John Holt, gaining 14.29% and 12.5% respectively to close at N0.48 and N0.54 per share, due to market sentiments for low priced stock, while the worst performing for the period were Japual Oil and Fidelity Bank that lost 30.93% and 22.48%, closing at N0.67 and N2.31 respectively on the back of market forces and profit taking.

Market Outlook
We expect a reversal on the strength of low prices and more earnings reports to hit the market, with economic indices remaining strongly positive for bargain hunters to take advantage of this pullback to position for short trading. Even as more income investors take position in value and dividend paying stocks, ahead of 2018 Q1 corporate earnings and economic data.
Also, expect volatility and repositioning to continue, while profit taking will reduce on the strength of expected payout and earnings surprises.
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. A stock market is in cycles. You must know the cycle it, or particular stocks therein are to successfully manage your trading and investment risk. For stocks that should be on your shopping list to buy in these seasonal changes as the year unfolds, 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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