Mixed Performance, As H1 Earnings Kick Off, Political Cloud Thickens

Market Update for Week Ended July 6 and Outlook for July 9-13

Trading activities on the Nigerian Stock Exchange for the first full trading week of the second half of the year closed negative amidst caution among market players. Moreso, the week ushered in the NSE’s new market structure and trading procedures in an already a down market as revealed by the losses suffered and relative low volume traded within the period that reversed previous week’s gain.

This was despite the kick-off of the 2018 budget implementation with last week’s N25.17bn approved by the Federal Executive Council to construct roads leading to the second Niger bridge and ahead of the half-year earnings reporting season and expected economic data.

Still on the second quarter earnings season, some results are expected to beat market forecasts, especially of companies that posted impressive numbers in the previous quarters. They therefore have the tendency to continue on the path amidst the prevailing low price of equities on the exchange.

We observe that central banks across the world are hiking or leaving rates unchanged to stimulate growth and productivity in their domains at a time global financial markets remain unstable. This is amidst the rising oil prices and trade war among the U.S, China and Russia sending panic waves to investment world as international trade and relationship that drive confidence in investing international stocks.

With this in mind, it is likely that the Central Bank of Nigeria (CBN) at the coming Monetary Policy Committee (MPC) meeting, will vote to retain interest rate and other variables. This may be one way of sustaining the declining inflation rate, ahead of the release of funds as appropriated in the 2018 budget, while not forgetting the expected increased liquidity expected from the 2019 electioneering campaign spending that kicks off in this quarter.

Meanwhile, we expect the market to continue its oscillation as traders and market players trade with caution in this season, as the expected corporate earnings reveal the economic position in Q2 and what the GDP is also likely to be, knowing that Q1 had earlier recorded a slowdown in economic activities.

The negative sentiments in the review period indicate a selling pressure of 79% and buying, 21% were due to the new trading process, as investors attempt to position ahead of the earnings and economic reports, considering the low valuation of stocks.

However, despite last week’s seeming sell-off, the money flow index inched up to 41.45 points from the previous week’s 41.22 points, a sign that funds are still entering some stocks and the general market. The NSE index for the period remained above its 100-Day Moving Average, just as it also traded below its 50-DMA for the second week.

Equity Indicators Last Week

The NSE All share index for the period shed 652.96 basis points to close at 37,625.59bps, after opening at 38,278.55bps, representing a 1.71% decline on a low transaction volume, compared to the previous week’s. The volume index of total transactions for the period was 0.66, as the index slipped below the 38,000 mark again to continue its volatility on a down trend. Similarly, market capitalisation for the week closed at N13.63tr from the opening value of N13.87tr, representing a 1.71% value deprecation as medium and high cap stocks suffered price declines during the period.

Low cap stocks for the week dominated the advancers table as traders and investors took advantage of low prices to position, using the support and resistance levels to play these penny stocks, especially those in the insurance sector with high yields due to their current prices that seem to reflect the markets perceptions of the companies after the new pricing policy introduced in January this year. The market awaits the inflow of pension assets reclassification to commence, while the early filer starts releasing their Q2 in the new week.

Decline recorded for the period reflected on the NSEASI’s year to date returns, which sank farther into murky waters with 1.61% negative returns, just as market capitalisation turned negative at N48.18bn, representing 0.47% below the year opening value.

Negative Market Breadth

Market breadth for the week was negative as decliners outweighed advancers in the ratio of 45:27 on low transactions and high selling volume as smart money continues to exit, while the general elections draw closer while the polity is beclouded by so much uncertainties. This is playing out in the form of crises and disenchantment in the ruling party and the spate of insecurity now sending wrong feelers and negatively impacting investor confidence and ensuring that the market continues to trend southward resulting in players running for safety.

Trading for the period, started out on a bearish note recording 0.87% decline on Monday, which was sustained till midweek when the benchmark indices sagged by 0.81% and 0.28% respectively, before rebounding on Thursday when it gained 0.65%, before pulling back on Friday by 0.31%. These resulted in the index shedding all of 1.71% from previous week’s up market.

Sectoral performance for the period was bearish as the general market. Except for the NSE Insurance that closed higher, other indexes closed lower, after recording four trading sessions of losses.

Market activities in volume and value were down by 8% and 23.12% respectively to 1.84bn shares worth N16.59bn, from previous week’s 2.0bn units valued at N21.58bn.

Mutual Benefits Assurance and Multiverse Mining were the best performing stocks for the week, topping the advancers table with 21.662% and 20% gains respectively to close at N0.38 and N0.24 each as a result of low price attraction and sentiments.  The worst performing equities were Forte Oil and Omoluabi Mortgage Bank that lost 19.79% and 18.31%, closing at N26.35 and N0.58 respectively on market forces.

During the week under review, the share prices of MRS Oil and Nahco were adjusted for scrip and cash dividends recommended by their directors, while Presco, Learn Africa, Capital Hotel and Initiative Plc are billed for mark down this week.

Market Outlook 

As the week open, we expect mixed performance as second quarter earnings season kicks off in the midst of events unfolding in the political environment and expected economic reports.

Investors should review their position in line with their investment goals and take action as events unfolds in the global and domestic environment.

However, we would like to reiterate our advice that investors should go for equities with intrinsic value, especially during this season were less earnings are released ahead of march full year earnings release and Q2 interim dividend payment are expected in the market arena very soon.

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.

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Sub Topics

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Ambrose Omordion

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