NGSE Equity Prices Come Under More Intense Pressure, Amidst Leaner Foreign Reserves

Market Update for August 14, 2018

Nigeria’s equity market narrative remained negative on Tuesday on a continued selloff by foreign portfolio investors that earlier took profit from the late rally recorded in 2017 and early 2018 as a result of improved liquidity, positive macro-economic indices and company fundamentals that confirmed the country’s exit from recession in Q2 2017. This tempo was sustained till Q4 2017, before the retrogressive moves that hit the economy ahead of next year’s general elections, a situation that was made worse by a string of other global economic factors.

There is the general lack of positive economic stimulus, policies and statements that would reassure investors, either from government or the regulators, added to the prevailing low liquidity in the market, with some politician-investors earlier bailing out to hold cash preparatory to the elections.

In the meantime, other investors have since joined the fray, exiting the market to protect their capital, amidst belief that recovery may not happen sooner than February, by which time investors would have known who assumes office as President of the Federal Republic of Nigeria on May 29, 2019.

The sustained, even if gradual, depletion in the nation’s eternal reserves is also a source of concern for investors, as it makes deems hopes of interest rate cut, while supporting a likely hike to manage capital flight at a time investment are being drawdown by hot money. Also, a recent Central Bank of Nigeria (CBN) data showed a decline in currency-in-circulation (READ MORE).

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Market technicals for Tuesday were negative as volume traded remained lower than the recent market average in the midst of negative market breadth and mixed sentiments as revealed by Investdata’s Daily Sentiment Report, showing a ‘sell’ position of 53% and ‘buy’ volume at 47%. Volume index was 0.63 of the day’s total transactions.

The momentum behind the day’s market performance was weak, despite the little improvement recorded as indicated by the money flow index at 34.85bps, up from previous day’s 32.99 points, indicating that funds are still entering few low priced stocks despite low liquidity in the market.

Index and Market Cap
The NSE All Share index continued to slide, as it shed 111.05bps at 35,288.23bps, after opening at 35,399.28bps, representing a 0.31% decline, while market capitalisation was down by N400.53bn to close at N12.88tr, from an opening value of N12.92tr, representing 0.31% value loss, which further deepened investors’ negative position.

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The sustained downturn on Tuesday was due to price depreciation by medium and high cap stocks like Guaranty Trust Bank, Access Bank, Oando, UBA, ETI, FBNH, Fidelity Bank, Eterna, Flour Mills, Dangote Flour, Dangote Sugar and Berger Paints. These impacted negatively on the NSE’s Year-to-Date return, which further worsened to 7.73%, just as market capitalization decline within the period stood at N716.08bn, 5.35% below the year’s opening value.

Bearish Sector Performance
The sectorial performance for the day was largely bearish, except for NSE Consumer goods that was up by 0.22%. Market breadth was negative as the number of decliners outnumbered advancers in the ratio of 33:13, to continue straight eight sessions of down market.

Market activities were mixed as volume was up by 2.54% to 164.51m shares from the previous day’s 160.43m units, while value was down by 27.19% to N1.61bn as against the previous day’s N2.21bn.

Transactions for the day were boosted by trading in financial services stocks: UBA, Lasaco, FBNH, Fidelity Bank and Guaranty Trust Bank that witnessed increased trading to top the activity chart.

Mutual Benefits and Custodian Investment Plc were the best performing stocks that topped the advancers’ table, after gaining 10% and 9.90%respectively, to close at N0.33 and N5.64 respectively, purely on market forces and low valuation.
On the flip side, ABC Transport and Union Diagnostics were the worst, losing 10% each to close at N0.36 and N0.27 respectively as a result on profit taking and market forces.

Market Outlook
We expect the market to continue in this direction until after the political party primaries. As leadership of Nigeria’s Senate are salient on reconvening may further heat up the political environment as events unfold. 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
info@investdataonline.com
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Tel: 08028164085, 08032055467

https://investdata.com.ng/2018/08/ngse-equity-prices-come-under-more-intense-pressure-amidst-leaner-foreign-reserves/