Amidst Investor Indifference To Robust Data, CBN Seeks Policy To Moderate capital outflows

Market Update for May 22, 2018

The Nigerian stock market extended its string of losses into the fourth consecutive session on Tuesday, failing still to react positively to the nation’s 2018 Q1 GDP data which came in lower than expected with 1.95% growth, below previous quarter’s level, despite the rising oil price and stable output that continues to boost government revenue.
Also, on Tuesday, the Central Bank of Nigeria’s Monetary Policy Committee (MPC) concluded its second two-day meeting for the year with absolute majority of members voting against the expectation of many analysts when they opted for rate retention. In doing so, the committee noted the fragility in growth, even as they specifically noted the need to manage capital flight risk and inflation concerns even when it had dropped for 15 straight months, warning that liquidity inflow ahead of the elections and likely implementation of 2018 budget in second half of the year could be harmful to its target of single digit inflation sometime soon.

Specifically, on the capital market, the committee noted the bearish signs associated with profit taking activities of investors, calling “for a careful calibration of policy so as to moderate the trend of capital outflows in an era of monetary policy normalization in the United States.”
This, the communique added, “is given that there are already indications of severe attacks on the foreign exchange markets of some emerging economies.”
Meanwhile, the Nigerian Stock Exchange All-Share Index maintained its volatility as it stated Tuesday with a gap down, a situation that lasted till midday, plunging further down by the afternoon to retest the strong intraday support lows of 40,249.29 basis points, from the highs of 40,461.69bp. This therefore signals the onset of a full-blown bear market that calls for a change of strategy for investing profitably after four straight months of correction since the January peak level.
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Tuesday market technicals were negative and weak to usher in full bearish trend, as volume traded recently remains low in the midst of negative market breadth, with high selling pressure of 98%, while buying volume was 2% on a volume index of 0.79 of the day’s total transactions. The sell-offs for the day reflected in the money flow index which stood at 31.67bps further down from previous day’s 38.29bps. This is an indication that funds are weak to drive prices, while at the same time signaling the continued exit of smart money from the market, with the market on daily time frame continuing to trade below its 20-Day moving average for the sixth trading sessions in a 4-wave decline.

Index and Market Cap
The All Share Index on Tuesday shed 175.78bps to close at 40,249.29bps, after opening at 40,425.07bps, representing a 0.43% decline on a low volume that was slightly higher than the previous day’s. Similarly, market capitalisation lost N63.68bn to close at N14.58tr from an opening value of N14.64tr, also representing 0.43% value loss, keeping investors’ portfolios in red.
The downturn followed sell pressure in medium and high cap stocks like Dangote Cement, NB,11 Plc, UBA, FBNH, Flourmills, Oando, Dangote Flour, Dangote Flour, Honeywell, ETI and Zenith Bank. These impacted negatively on the NSE’s Year-to-Date returns, as it dropped to 5.25%; while market capitalisation gain for reduced to N970.03bn, 7.13% above the year’s opening value.

Bearish Sector Performance
The sectorial performance for the day were largely bearish, except for the NSE Insurance and Industrial that closed green on gains by NEM Insurance and Wapic, as well as the price appreciation by Cement Company of Northern Nigeria. Other indexes like NSE Banking, Consumer Goods and Oil/Gas were in red as a result of the sell off in NB, Dangote Sugar, Dangote Flour, Zenith Bank, ETI, FBNH, 11 plc and Oando.
Market breadth was negative with decliners outweighing advancers in the ratio of 34:19; just as market activities pointed north in volume and value by 3.2% and 77.6% respectively at 281.26m shares worth N4.09bn, from previous day’s 271.27m units valued at N2.3m. Transaction volume was boosted by financial services, healthcare and service provider like Ikeja Hotel, Fidson, Zenith Bank, FBNH and Sovereign Trust Insurance which witnessed increased trading to top the activity chart.
The best performing stocks for the day were Ikeja Hotel and CCNN that topped the advancers’ table, gaining 9.7% and 5% respectively to close at N2.04 and N25.20 each. This was as a result of market forces and stronger earnings/ high dividend yield.
On the flip side, Eterna and Honeywell were the worst performing, losing 8.6% and 5% respectively to close at N6.20 and N2.47 each purely on profit booking.

Market Outlook
We expect profit taking and volatility to continue as market players digest the MPC meeting outcome and Q1 GDP data. Equity prices fail to react to any positive company, market and economic fundamentals and news. NSE Index recent formation of descending triangle chart pattern supports continuation of the prevailing trend.
Investors should not panic out of their position but watch events as it unfolds.
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 and Q1 results are expected in the market arena.
We advise investors to allow numbers guide their decisions while repositioning in any stock, 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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