Amidst Attractive Valuations On NSE, Investors Balance Political Risk, Against Reward

Market Update for Week Ended May 11 and Outlook for May 14-18

Nigeria’s equity market Friday recorded another back-to-back weekly decline as it continued side-ways trending as the sell-off momentum increased despite the healthier state of the economy, market and company fundamentals, all of which have been attested to by the majority of full-year financials and further confirmed by Q1 numbers so far released.
Investors have also continued to ignore the considerably low valuation of equities trading on the Nigerian Stock Exchange (NSE) owing to sustained market corrections in the month of May which has defied the mantra of “sell in May and come back in October” among traders and investors.

Investdata research confirms that this signals the exit of smart money, profit booking and reduced activities in the market amidst cautious trading by players who are very conscious of the political risk as the 2019 general elections approaches. To worsen the political angle is the fact that shadow elections within the political parties to select flagbearers have been anything but without rancor and acrimony, leading to rescheduling of the primaries, even by the ruling All Progressives Congress (APC). The political uncertainty seems to have beclouded the positive impact of rising oil prices in stabilizing and boosting the ongoing economic recovery expected to supports growth, as well as the growth in the nation’s tax net, with the Federal Government’s announcement that the number of Nigerian tax payers has risen above 19 million, even as more efforts are being put into widening the net before the June 30, 2018 deadline provided under the Voluntary Assets and Income Declaration Scheme (VAIDS).

It is true that at any given time in the market cycle there is opportunity to make money, meaning that despite the continued volatility and the seeming uncertainties in the political environment, discerning traders and investors that understand the dynamics of stock markets will know when to play short or long, depending on their investment goals. They must also know the forces behind any stock or general market movement by looking at money flow index which will determine the class and nature of equities to take position in, without losing sight of the need for safety and return on such investment.

The pockets of opportunities in this dicey market situation is what our investdata BUY-and-SELL signal setup provides for market players and followers as an independent research and training company.
NSE Q1 earnings reports were positively surprising as 64% company score-cards came with top and bottom line growth, reflecting improvements during the period, while supporting the possibility of a better-than-expected Q1 GDP data when released by the National Bureau of Statistics (NBS) on Tuesday, May 22, 2018, according to the release calendar. The Q1 numbers should help market players identify opportunities on the exchange and give insight into what to expect from the individual stocks. The very compelling technical confirmation supports a pullback which will give way for correction to continue.

Equity Indicators Last Week
Meanwhile, the composite NSE All-Share Index last week shed 196.41basis points to close at 41,022.31 basis points from 41,2418.72 bps, representing a 0.48% decline on a higher transaction volume, compared to the previous week’s. The volume index of total transactions for the week was 0.64, with selling pressure at 91% and buying volume, 19% to continue the previous week’s losses, while remaining above the 41,000 psychological line. Similarly, market capitalisation for the period shed N71.1bn, closing at N14.86tr from an opening value of N14.93tr, representing a 0.48% loss. This resulted from sell-offs in Nigerian Breweries, Dangote Cement and Guaranty Trust Bank during the week.

Low medium and high cap stocks dominated the advancers’ table in the period under review, as investors realigned their portfolios in the light of stronger numbers, even as the actual Q1 earnings continue to give direction.
Last week’s profit booking by traders in highly capitalized stocks during the period impacted negatively on the NSEASI’s year-to-date returns, as it contracted to 7.27%, just as growth in market captalistion dropped to N1.29 trillion, representing 9.41% rise from the year’s opening value.

Market Breadth
Market breadth for the week was negative as decliners outnumbered advancers in the ratio of 49:35 on higher volume of trades and weak demand for stocks, with Q1 company scorecards still being digested to enable better informed investment decisions. Selling pressure increased from 39% in the previous week to 81%.
The NSE index opened the week on a negative note, halting previous Friday’s gain by losing 0.11%, a situation that was sustained till Thursday, shedding 0.04%, 0.18% and 0.40% on Tuesday, Wednesday and Thursday respectively. The decline was however halted on Friday when the index recovered 0.26%, which was not enough to change the situation as the week closed lower at 0.48%, on the back of strong profit taking during the period.

Performance across sectors were mixed as the NSE Banking, Insurance and Oil/Gas were green, while Consumer and Industrial goods indices closed red, due to sell-offs in Nigerian Breweries and Dangote Cement, the two biggest stocks in the market by capitalization, which pulled the market south.
Market activities in volume and value were up by 19.55% and 24.71% at 1.59bn shares worth N25.99bn, as against previous week’s 1.33bn units valued at N20.84bn.
CCNN and Veritas Kapital were the best performing stocks for the period, topping the advancers table with 29.75% and 27.27% gains respectively and closing at N29 and N0.42 per share, on the back of positive market sentiments arising from their impressive dividend payout and strong numbers. The worst performing were Niger Insurance and Japual Oil which gave up 14.29% and 13.04% of their opening prices to close at N0.24 and N0.40 respectively on profit taking and market forces.

During the week also, the share prices of Berger Paints, Consolidated Hallmark Insurance, Nestle, Pharma Deko, FBNH and Infinity Trust Mortgage Bank were adjusted for dividend recommended by their directors.

Market Outlook
We expect, a mixed performance as actual numbers and the upbeat economic data continue to guide investors as they reposition their portfolios in the midst of low valuations in medium and high cap stocks. Analysts have also started second-guessing the expected Q1 GDP, April Inflation, the next MPC meeting, as well as half year interim dividend of some traditional companies on the strength of numbers. Also, we expect the impact of the rising oil price to boost the fiscal spending to support Nigeria’s economic fundamentals.
Meanwhile, dividend income players are taking position ahead of more economic data, even amidst the expected sustained volatility and repositioning.

However, we would like to reiterate that investors should not panic but go for equities with intrinsic value, especially as interim 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 take 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
info@investdataonline.com
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