NGSE Closes Up, Betrays Signs Of Bottoming, But Investors Watch Politico-Economic

NGSE Market Update for August 20, 2018

Trading activities on the Nigerian Stock Exchange (NSE) on Monday was a very volatile session, which closed positive this time around on seemingly improved sentiments that supported the back-to-back gains due to price appreciations in highly capitalized stocks like Dangote Cement and Stanbic IBTC, ahead of the public holidays on Tuesday and Wednesday for the Sallah festivities.

The benchmark NSE All-Share index on Monday started out sharply on the downside in the morning hours, a situation that was sustained until afternoon, as highly capitalized stocks suffered further decline. This was reversed up at about 2.01pm to touch intraday highs of 35,425.17 basis points, from its lows of 34,900.25bps, on a new Motive Wave, in the last few minutes, before closing at 35,341.90bps on a declining volume.

The two-day rebound after seven months of downtrend into the year is still not strong enough to say there is a recovery until a breakout of the first resistance level at 35,448.27 before anything. So then, let the traders keep their gaze on the market hoping that the recently reported meeting between Nigeria’s financial market regulators and stakeholders will provide the short and medium-term boost for the market.
Also, there is hope that fiscal stimulus in the 2018 budget will be implemented, just as managers of the economy wake up to take another deep look at the administration’s Economic Recovery & Growth Plan (ERGP).

Meanwhile, the NSE may just be close to recovering the losses posted between its January highs. This will become clear after Nigeria’s February 16, 2019 Presidential election, which will however begin with the various party primaries slated for between August 18 and October 16, 2018. According to the electoral timetable, political campaigns are billed to kick off on November 1, 2018.
However, the NSE’s composite ASI remains 21.84% off its January highs, a gap the market may not be in a hurry to close, owing to factors weighing heavily against at this time, particular the socio-economic and political environment.

Remember, we have two earnings quarters with mixed performance under our belt, made worse by the declining momentum in economic data, which will reflect on stocks apart from the political tension.
The news of China and US coming back to the negotiation table amidst the trade war will not impact our market unless there is a reduction in interest rate in developed economics. The market’s low Price-to-Earnings ratio should offer very attractive investment opportunities in the coming months.
Maybe the best signal for Nigerian’s equity market at this time is this chart below, which looks like it may have bottomed out. But then, there is need to confirm direction after the Sallah holidays.

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Monday’s market technicals were negative and mixed as volume traded was low in the midst of negative market breadth and positive sentiments. This was confirmed by Investdata’s Daily Sentiment Report, showing a ‘buy’ position of 84% and ‘sell’ volume at 16%. Volume index was 0.88 of the day’s total transactions.
The energy behind the day’s market performance was weakened further, as reflected in the money flow index at 15.74bps, down from previous day’s 16.77 points, indicating that funds continues to leave the market in the midst of prevailing low liquidity in the general economy.

Index and Market Cap
The NSE Composite index the session gained 75.61bps at 35,34190bps, after opening at 35,266.29bps, representing a 0.21% growth, to remain in the safe zone, while market capitalisation was up by N27.63bn to close at N12.9tr, from an opening value of N12.88tr, representing a 0.21% value gai, further reducing investors’ negative position.

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The Upturn on Monday was as a result of value appreciation in low medium and high cap stocks that impacted positively on the NSE’s Year-to-Date return, thereby further contracting to 7.57%, just as market capitalization decline within the period dropped to N706.95bn, or 5.19% below the year’s opening value.

Mixed Sector Performance
Sectorial performance for the day was largely bearish, except for the NSE Industrial goods and insurance that closed in the green by 2.39% and 0.89% respectively. Market breadth was nonetheless negative as decliners outnumbered advancers in the ratio of 22:11 to record two sessions of bull transition.
Market activities were mixed as volume was down by 41.09% to 220.5m shares from the previous day’s 374.53m units, while value rose 17.08% to N3.19bn from Friday’s N2.72bn.

Transactions for the day were boosted by trading in financial service stocks that witnessed increased trading to top the activity chart, like: UBA and Access Bank, whose audited half-year reports being eagerly awaited. Zenith Bank has presented its own financials, just like FBN Holdings; as well as Skye Bank, which recently announced plans to present its backlog of financials like the 2016 and 2017 audited, and the half-year unaudited.

Newest ASL and FCMB were the best performing stocks as they topped the advancers’ table, after gaining 8.99% and 5.88%respectively, closing at N4.85 and N1.80 respectively, purely on market sentiments.
On the flip side, UACN Property and Honeywell were the worst, losing 8.19% and 7.59% respectively to close at N1.57 and N1.46 respectively as a result on profit taking and market trend.

Market Outlook
We expect the market to oscillate as bargain hunters take advantage of the low-price regime, as political party primaries kicks off. The ongoing anxiety in Nigeria’s political environment by party leaders are scaring investors away. The market may also likely be impacted by the outcome of the expected Q2 GDP report any moment as the whole world watches Nigeria’s politicians ahead of the all-important 2019 general elections.

Meanwhile, investors continue to interpret the recent Q2 earnings reports so as to rebalance their portfolios and watch the political space, while analysing the actual numbers released so far as a basis for determining the market and economy’s direction going forward. More disappointing reports will drive the market further down, or inspire a reversal if the numbers beat expectation.
Also important, is the outcome of the shadow elections by political parties taking place in the month of August. Investors should review their positions in line with investment goals, strength of the company numbers and act as events unfold 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 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 fundamental.

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Ambrose Omordion
CRO|Investdata Consulting Ltd
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