Investors To Begin Portfolio Realignments As Buhari Declares For 2nd Term Ambition

It was yet another very negative trading session on the Nigerian Stock Exchange (NSE) on Monday, as the declaration for second-term by President Muhammadu Buhari, following which it is to be expected that investors will immediately begin portfolio realignments.
Since this would open the door for a flurry of political activities ahead of the country’s 2019 general elections, investors would change strategies as the election date draws closer and events unfold. The simple explanation is that discerning investors would naturally seek to protect their capital and benefit from the expected electioneering inflow of funds that will trickle to the market, given that the 2019 election may not be as intense as that of 2015.

The composite NSE All-Share index opened with a big gap down, then rallied back in bear flags, before plunging by mid-morning, after which it rallied back in larger bear flags, but could not get through resistance, and then rolled over hard to close lower on a day the President declared his second-term ambition, just before jetting out to London.
Meanwhile, Monday’s down market was despite being close to the onset of the Q1 earnings season and ahead of the March inflation figure release, as well as other economic data like Q1 GDP, Consumer confidence index and labour market reports by National Bureau of Statistics (NBS).

President Buhari’s second term declaration did not however catch the market unawares since the rumour mill, just as the news and social media had been awash with the information for several months. The unassailable fact remains that there is growing unease over the government’s reforms and fiscal stimulus which have inspired the economy beyond the usual mantra of Nigeria having exited recession, with the living standard of Nigerians in continued decline, as infrastructure decay continues despite the huge amount the government says has been spent on capital projects so far. Worse still, the 2018 budget remains on the shelf of the National Assembly controlled by the President’s All Progressives Congress (APC), as the executives and legislators continue the blame game over which arm is causing the delayed passage. Meanwhile, the economy is suffering, just as businesses battling with huge cost of production, among other challenges, a situation that could have been worse, but for the efforts and interventions of the Central Bank of Nigeria (CBN) in key areas of the economy to cushion the effects of the hardship.
Market correction continued as equity prices suffered losses, despite the rush of improved corporate score-cards, at time earnings capacity of listed companies have improved by 23% to N7.6tr from N6.2tr recorded in 2016. This is expected to continue in 2018 as factors that influenced these companies positively to produce these numbers are still intact. The expected Q1 2018 numbers are expected to give the real state of listed companies, as well as insight into what should be expected, going into the year.

Market technical for the day were negative and weak as traded volume low on a strong selling pressure of 100%, while market breadth and sentiment stayed negative as revealed by the buying position of 0% against selling volume of 100% on a volume index of 0.65 of the day’s total transaction. Money flow index is still looking up at 40.14 points from the previous day’s position of 39.14 points.

Index and Market Cap

The All Share index shed 441.96 points, closing at 40.429.18 basis points after opening at 40,841.14bp, representing a 1.01% decline on a low volume lower than the previous day’s. Similarly, market capitalisation for the day went down by N149.67bn to close at N14.6tr from an opening value of N14.72tr, representing 1.01% value loss that further weakened investors’ bleeding portfolio.
The downturn was attributed to sell off and profit taking in low, medium and high cap stocks, that impacted negatively on the NSE’s Year-To-Date returns, which contract to 5.87%, just as market capitalisation gains for the period stood at N1.13tr, representing 7.58% above the year’s opening value.

Negative Sectoral Indices

Sectoral performance for the day was bearish along the line of the composite index, except for the NSE Insurance that closed higher due to value gain in AXA Mansard and Continent Reinsurance.
Market breadth for the day was negative as decliners outnumbered advancers in the ratio of 30:17 to continue the bearish transition.
Market activities were down in volume and value by 42.82% and 15.57% respectively at 287.04m shares worth N4.95bn, from the previous day’s 501.96m units valued at N5.85bn.

Transaction volume was boosted by financial services and consumer goods stocks like FBNH, Skye Bank, FCMB, Zenith Bank and Nigeria Breweries which witnessed increased trading to top the activity chart.
The best performing stocks were Learn Africa and Japaul Oil topping the advancers’ table after gaining 9.28% and 8.89% respectively to close at N1.06 and N0.49 each. This was due to market forces and sentiment
On the flip side, C&I Leasing and Skye Bank were the worst performing, after losing 9.30% and 8.43% to close at N1.56 and N0.65 respectively on profit booking and market forces.

Market Outlook
We expect the ongoing volatility to ease off gradually amidst portfolio realignments, as low stock prices continue to attract bargain hunters repositioning ahead of Q1 scorecards and economic data. Even so, value investors continue to position for the short and long-term on the strength of company fundamentals.
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 ongoing.

We advise investors to allow numbers guide their decisions while repositioning for 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
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