Post-MPC: Investors Eyes On Q1 Earnings, GDP Data For Nigeria’s Economic Health

At last, the Central Bank of Nigeria’s all-important Monetary Policy Committee (MPC) ended its first two-day meeting of the year Wednesday, with investors likely to focus their gaze on the expected first quarter earnings of companies, as well as GDP and inflation data that would confirm Nigeria’s Economic wellbeing.

The stock market’s benchmark indicators suffered another slip for the day, with the index dropping at the opening session, a situation that lingered till afternoon in expectation of the outcome of the MPC meeting, the first for the year(READ). There was however a rally back to resistance few minutes to the close of trading, as the losing momentum reduced when it became evident that the committee members voted to leave the rates unchanged. Trading today and the coming days would however either validate that belief or show whether it was mere happenstance.

The members had considered the uncertainties within the socio-political environment, particularly inflation and heavy spending that would accompany the coming general elections and other happenings in the developed economies and markets, especially UK and the U.S. However, Nigeria’s benchmark market index moved from a low of 40,512.27 to intraday high of 40,855.83, before closing up at 40,749.84. This monetary stimulus-driven economic recovery could support more inflow of capital. However, foreign investors cannot be predicted since their funds are for different purposes and these fund managers have a limit of exposure for different markets.

As we said back in January, after the market had experienced an up trend in 2017 which continued into the early sessions of this year, knowing that stock markets do not go in just one direction. With that in mind, we should expect to have dips along the way, especially in a pre-election year as this, despite the ongoing economic recovery and bull market that ushered investors into 2018.
In the history of Nigeria’s stock market, the benchmark index has had an average 10-12% decline once a year. A correction here would be healthy and set the table for hotter company earnings, as well as market and economic growth to ultimately drive returns for the year. More of that could come after the 2019 election if the economic recovery and growth path are sustained.

The market has had more than 10% decline from this year-high already, and we expect to have a little V-shaped recovery before the political environment become more tensed ahead of the general elections. Expectations are that the passage of the 2018 budget into law soon and its faithful implementation thereafter will bring about monetary and fiscal stimulus-driven economic recovery. Happenings in the coming weeks would also validate the impact of the monetary and fiscal authorities on the system.

Despite, the mid-week’s mixed market technicals, traded volume was high on a buying pressure of 69%. Market breadth was however negative as investor sentiment was strengthened going by the buying position of 69% and selling volume of 31% on a volume index of 0.79 of the day total transaction. Money flow index side-trended at 23.54 points from the previous day’s position of 23.43 points.
More companies in readiness of releasing their Q1 earnings reports, notified the exchange of their closed period for Q1 numbers, while investors and traders continued to use the qualification and markdown dates for audited 2017 full-year financials to position for dividend income in the face of a declining market.

Indexes Side Further
At the end of the day, the composite NSE All-Share index shed 105.78 points to close at 40.749.86 basis points after opening at 40,855.64bp, representing a 0.26% decline on a relatively low volume that was higher than the previous day’s. Similarly, market capitalisation for the day went down by N38.21bn to close at N14.72tr from an opening value of N14.76tr, which represented 0.26% depreciation in value, that further dragged investors positions into red.

The second consecutive day of down market was as a result of price adjustment in Zenith Bank shares due to the N2.45 final dividend proposed by the directors for the 2017 financial year, as well as profit taking in low, medium and high cap stocks like Dangote Flour, Honeywell, Flourmills and Double One. These impacted negatively on the NSE’s Year-To-Date returns, as it contracted to 6.55%, just as market capitalisation gains for the period reduced to N1.16tr, representing 7.98% YTD growth.

Sectoral performance for the day was mixed, as the NSE Industrial and NSE Oil/Gas were up, while NSE Banking, NSE Insurance and NSE Consumer goods closed lowerand in the same direction as the benchmark index. Market breadth for the day remained negative with decliners outweighing advancers in the ratio of 26:18.
Market activities were up in volume and value by 9.79% and 8% respectively at 401.41m shares worth N6.77bn from the previous day’s 365.72m units valued at N6.28bn.

Transaction volume was boosted by financial services stocks like: FBNH, Zenith Bank, Fidelity Bank, Access Bank and Guaranty Trust Bank, which witnessed increased trading to top the activity chart.
The best performing stocks for the trading session were LASACO and Fidelity Bank, that topped the advancers’ table after gaining 5.88% and 5.76% respectively to close at N0.36 and N2.57 each. This may signal the appreciation of Lasaco’s performance and dividend proposition, while anticipating equally robust earnings by Fidelity Bank. On the reverse side, Dangote Flour and Multiverse were the worst performers, after losing 9.54% and 9.09% to close at N13.75 and N0.20 respectively on below expected dividend and market forces.

Market Outlook
Following the outcome of the MPC and low-price attraction, expect the ongoing volatility to continue, ahead of Q1 scorecards and economic data, even as investors position for the short and long term on the strength of company fundamentals and the expected Q1 numbers.
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
CRO|Investdata Consulting Ltd
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