Further Repositioning Ahead, On Earning Surprises, Amidst Wait For UBA, Access

Market Update for Week Ended August 17 and Outlook for Aug 20-24
It was yet another week of bear dominance on the floor of the Nigerian Stock Exchange (NSE) as equity prices kept declining as a result of panic selloffs and cautious trading by market players, in the absence of respite from the leadership of politicians who continue heating up the nation’s polity ahead of the 2019 general elections. It could however have been worse, but for Friday’s rebound as a result of price appreciation of Dangote Cement, the market’s most capitalized stock, ending 10 consecutive trading sessions of decline.
There have been plenty of analyses, reports and charts lately about the current bear market becoming the “fastest on record within the shortest time.” Below is an updated look at the length of the current bear market, compared to past bear markets on the NSE.
First things first, though, until the NSE closed at a new five-year high in January 22, 2018, representing the end of the bull ascendance in the market. Before then, the market had decline for three years: 2014-2016 before rebounding in 2017, which extended to early January 2018. Thus, the current bear market has lingered seven months since January 22, 2018.
A bear market is commonly defined as a 20%+ decline coming after a 20%+ rally. Since we don’t know whether the NSE index will go into a new bull market in the nearest time due to political uncertainties surrounding the rest of the year to close above its 1/22 high, or vice versa, we can extend the length of the current bear market, depending on market forces and sentiments that influenced the movement of stock prices.

The Nigerian market has suffered 22.19% loss from its January 22 peak of 45,312.82 to 35,266.29 last Friday.
The recent reports published by NBS and CBN show a slowdown in economic activities, even as the July Consumer Price Index further move towards single-digit inflation at 11.14% from June post of 11.24% . The decline in July PMI and consumer confidence index was due to the fall in consumer demands which has affected the performance of consumer goods manufacturing companies, as reflected in the half year corporate earnings. These has further depressed the share prices of these companies on the NSE.

The nation’s foreign reserves, money in circulation, the 4% dip in oil price recently to $70.62 per barrel, among others, have since confirmed the decline. When the oil price drop is combined with the effect of a 7.3% slip in production output to 1.66m barrels per day in 2018Q2, it only shows that the Federal Government’s revenue projection for 2018 could come under some pressure. This could make further fiscal consolidation a major challenge as the market expects implementation of 2018 budget and electioneering spending to impact the liquidity level in the system.
During the week under review, only three companies released their earnings reports. While both quarterly reports by Stanbic IIBTC and Linkage Assurance, were impressive, the full-year scorecard by Afromedia was disappointing.

Market reaction to the Q2 numbers were positive and general sentiment for the week were mixed with buying position at 77%, while selling volume stood at 23%, as bargain hunters took advantage of low prices. This was despite the selloffs and profit booking as majority of investors and traders continued to ignore company fundamentals in their desperate run for capital safety.
Negative market breadth for the period was widened as the momentum behind the week’s trades was weak despite inching up as reflected in the money flow index that rose to 24.45 points from previous week’s 23.51points. This is an indication that funds are searching for direction in a market that is facing liquidity challenges as the smart money continues to sell down.

Equity Indicators Last Week
The NSE All-Share index suffered further decline within the period under consideration to consolidate seven weeks of downturn, despite the rebound to seemingly safe zone. The NSE index shed 180.18 basis points to breakout the psychological line of 35,000; after touching intraweek lows of 34,562 point to finish the week at 35,266.29 basis points, having opened at 35,446.47bps, representing a 0.51% decline on improved traded volume, compared to the previous week’s. The volume index of total transactions for the period was 0.50, as market capitalisation was down by 0.51%, closing at N12.88tr from the previous N12.94tr. This was due to the decline in the rate of selloffs in high cap stocks, as traders and investors took position on Friday to reduce sell down by foreign investors.
A mix of low and high cap stocks dominated the top advancers table for the week as short-term traders took advantage of the low prices to position, especially as financial market regulators and stakeholders parleyed on Wednesday to find solution to the prolonged correction. The meeting, it was gathered, was to encourage more local participation in the market, expecting also that the regularizing of accounts will further boost liquidityy according to Ms. Mary Uduk, Acting Director-General of the Securities & Exchange Commission (SEC).
Meanwhile, the NSEASI’s year to date negative returns deepened further to 7.78%, just as market capitalisation yielded negative returns of N734.56bn, or 5.40% below the year’s opening value.

Bearish Market Breadth
Market breadth remained negative as the number of decliners outweighed advancers in the ratio of 56:14 amidst intensified selloffs and profit taking, due also to the declining economic numbers as reported by CBN and NBS. We cannot rule out the impact of the currency war now threatening global economic growth and expected hiking of rates in the developed economies, which may further put pressure on the emerging and frontier markets.
The NSE Index opened the week on a negative note, a situation that was sustained through to make lower lows before rebounding on Friday on a high volume and strong market sentiment, resulting in 1.87% gain that reduced the negative position during the period, culminating in a 0.51% loss for the week, a significant improvement, when compared to previous week’s 2.89% slide.

All sectoral indexes closed lower for the week, except for the NSE Premium and Industrial Goods that closed higher, while NSE AseM remained flat.
Market activities for the period were up in volume and value traded by 23.87% and 50.55% respectively to 1.45bn shares worth N12.53bn, from previous week’s 925.63m units valued at N8.33bn.
International Breweries and Portland Paints were the week’s best performing stocks, chalking 10% and 9.87% gains respectively to close at N35.20 and N2.47 each, due to market forces and positive sentiments. The worst performing were: Neimeth International Pharmaceuticals and Secure Electronic, with 25% and 20.69% dip, closing at N0.60 and N0.23 respectively on profit taking and market forces.
During the week, the share price of Guaranty Trust Bank, Linkage Assurance and Aluminum Extrusion Industries were adjusted for dividend recommended by their directors.

Market Outlook
We expect a mixed performance for the market in the new week, if last Friday’s rebound is confirmed as market opens Monday morning, while volatility is likely to continue with economic reports and corporate earnings being analyzed. The market is however anxiously waiting for the half-year reports of UBA, Access Bank and probably, Fidelity Bank which is billed to join the interim dividend companies, even as analysts, investors and traders digest economic and numbers already released.

There could be repositioning on the strength of earning surprises and disappointing numbers that come below market expectations in the midst of events unfolding in the political environment. Investors should review their positions 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 more quarterly earnings are expected to hit the market, ahead of Q2 interim dividend paying equities in August due to the auditing process of their financials for half year.
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.

Ambrose Omordion
CRO|Investdata Consulting Ltd
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https://investdata.com.ng/2018/08/further-repositioning-ahead-on-earning-surprises-amidst-wait-for-uba-access-fidelity/