NGSE’s Indicators Slide Further As Hope For Reversal Blinks

Market Update for August 13, 2018

Trading activities on the Nigeria Stock Exchange on Monday closed negative again to consolidate seven consecutive trading sessions of losses on the back of increasing selloffs by foreign investors that had positioned in blue-chip companies. This is due to political uncertainties, heightened trade and currency war heating the global economy as currency devaluation shakes up markets globally due to fear of sovereign debt default as the US$ looks up.

The NSE benchmark All-Share index had a volatile session as it opened the day on a little upside before pulling back at midday into afternoon in a forth movement, after touching lows of 35,351.76 basis points, from the high of 35,472.76bps. Within the final few minutes the market closed above the day’s support level at 35,399.28bps on a low volume to signal resistance of decline if market forces will support a buy market to reverse the selloffs in the short run.

The second quarter earnings reporting period has actually been the most bearish for stock price reactions throughout recallable history of the NSE so far. This is the only quarter of the year, for example, where stocks have historically declined on their earnings reaction days going back to 2010. As shown in the numbers released, even as this Q2 is shaping up to give investors insight into what should be expected in the coming quarters.

It is worthy of note that during the earnings season, that stocks on bid after impressive results are released get matching supplies almost immediately in the form of offer, a situation which suppresses the expected positive impact of the numbers as people sell to protect capital.

This phase of continued decline in equity prices suggests that fundamentals are not reflecting in stock prices, following which investors and traders should apply technical analysis to navigate the gap between intrinsic value and market price of various equities. They can achieve this by leveraging techniques like statistical analysis and behavioral economics.

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Monday’ market technicals were negative and mixed, as volume traded was 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 61% and ‘buy’ volume at 39%. Volume index was 0.61 of the day’s total transactions.

The energy behind the day’s market performance was weak, despite the little improvement recorded as indicated by the money flow index at 32.99bps, up from previous day’s 30.84 points, indicating that funds are still entering few stocks despite low liquidity in the market.

Index and Market Cap
The NSE’s benchmark index closed down again, as it shed 47.19bps at 35,399.28bps, after opening at 35,446.47bps, representing a 0.13% decline, while market capitalisation dropped by N17.28bn to close at N12.92tr from an opening value of N12.94tr, which represented 0.13% value loss that further deepened investors’ negative position.

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Monday’s downturn resulted fro losses suffered by medium and high cap stocks like Guaranty Trust Bank, Zenith Bank, Oando, UBA, Access Bank, Diamond Bank, Forte Oil, Flour Mills, Guinness, Dangote Sugar and Wema Bank. This impacted negatively on the NSE’s Year-to-Date return, which further worsened to 7.44%, just as market capitalization decline within the period stood at N675.53bn, and 5.04% below the year’s opening value.

Bearish Sectoral Performance
Sectorial performance indices for the day were bearish to close down, except for NSE Industrial goods that was flat. . Market breadth was negative as the number of decliners outpaced advancers in the ratio of 26:13, to continue straight seven sessions of bear run..

Market activities were mixed as volume was down by 16.87% to 160.43m shares from the previous day’s 193m units, while value was up by 8.95% to N2.21bn as against the previous day’s N2.03bn.
Transactions for the day were boosted by trading in financial services and conglomerate stocks: UBA, FBNH, Guaranty Trust Bank, Zenith Bank and Transcorp that witnessed increased trading to top the activity chart.

Eterna and UACN were the best performing stocks that topped the advancers’ table, after gaining 9.92% and 7.69% respectively, to close at N7.20 and N14 respectively, purely on market forces and low valuation.
On the flip side, Union Diagnostics and Mutual Benefits were the worst, losing 9.09% each to close at N0.30 each on profit taking and market forces.

Market Outlook
The market is likely to continue in this direction until after the political party primaries. Monday’s decision by the leadership of Nigeria’s Senate to abort Tuesday’s planned 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 with toying with the nation’s future at the detriment of the economy.

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
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