Cautious Trading Ahead, As Stocks Hit 52-week lows Amidst Thickening Political Clouds

Market Update for the week ended Sept 14 and Outlook for Sept 17-21

As we have mentioned earlier, Nigeria’s equity market in the danger zone, after breaking down the 35,000 psychological line, losing over 50% of the gain recorded in 2017, with more of the listed companies hitting lower lows to create opportunities for bargain hunting. Emerging numbers reveal that more of blue-chip stocks having stronger fundamentals are hitting their 52-week. They include: Guaranty Trust Bank, Zenith Bank, Nigerian Breweries, Dangote Cement, Foret Oil, UACN, UBA, Access Bank, Fidelity Bank, UBN and Lafarge Africa, among others in the week under review before the seeming rebound on Friday.
This situation may likely not be sustained as it has created room for short-term speculative movements due to the dwindling economic indices, the latest of which was the inflation data for August. The data released on Friday by the National Bureau of Statistics (NBS) indicates a reversal of the downward trend in growth rate with 18 consecutive months of decline. Consumer Price Index inched up from July’s 11.14% to 11.23%, at a time supposedly the onset of the harvest season. Add this to the political tension across the land, made worse by the lack of a fundamental driver to boost investors sentiment until after the February 2019 presidential election. We expected the current weak performance to continue as liquidity in the market remains low.
Investdata has consistently monitored the underlying breadth levels of the Nigeria stock market to look for divergence with price. The NSE index is currently trading well into more oversold territory (more than 1 standard deviation below its 100-day moving average). The composite index’s weekly advance/decline line is NOT oversold, however, the week’s A/D line has moved up to neutral levels above zero at 50.85. Even with index oversold, neutral breadth means there could still be more room to run lower before we would expect upside reversal to occur. RSI (14) is currently at oversold region at 22.97 which is the lowest in the past five years.

NSEASI Weekly Time Frame
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Stock markets around the world had a mixed sentiment during the week, despite the seemingly reduced tension arising from the trade war following fresh negotiations between China and the U.S. Also, there is the relative calm that has returned to Turkey as its central bank hiked rates to 24% from 17.75% in a bid to checkmate inflationary pressures which impacted positively on its currency for the period. Within the week, the Bank of England and European Central Bank held rates at 0.75% and 0.00% respectively. Crude oil price rallied to four-month high, hitting $80 due to sanctions on Iran and the flood affecting production in the U.S.
Back home, negative sentiments persisted as the composite NSE All-Share index recorded its seventh consecutive sessions of decline, due to last minute selloffs by hot money and investors, amidst the political tension. This is especially with unpredictable party primaries kicking off, just as next Saturday’s Osun State governorship election expected to foreshadow what could happen in 2019, just as that of neighbouring Ekiti some months ago. Sentiment report for the week, showed ‘sell’ volume of 81%, leaving ‘Buy’ position at 19%, while volume index of total transaction stood at 0.61. Reasons for this increased sell pressure is the lack of a fundamental driver in September knowing that Q3 earnings season will be in October. By that time it’s expected that the capital project expenditure that will have direct impact on the economy, if the expected 2018 budget implementation is cashed backed for project execution. This is just as electoral spending would have commenced and would trickle down, especially given the attractiveness of the market at current equity prices, with most stocks highly undervalued.
The energy behind the week’s performance remained weak, despite the slight improvement in volume traded, as reflected in the money flow index at 22.80 points from previous week’s 31.08points. This is an indication that funds are exiting the market, supporting the argument that there is low liquidity in the market, despite the bargain hunters’ induced rally on Friday. During the week also, the share price of Honeywell Flourmill, Access Bank and UBA were adjusted for dividend recommended by their directors, while the suspension of RT Briscoe was lifted, following the submission of its belated earnings reports, including the audited full year 2017 and 2018 half year unaudited accounts.

Equity Indicators Last Week
The NSE ASI suffered a further decline to consolidate the three straight weeks of downturn with the index breaking down the psychological line of 32,000 basis points’ mark to test the 31,938.59bps, from a high of 34,014.49bps closing lower. The index shed 1,710.32bps, closing at 32,327.57bps from an opening figure of 34,034.91bps, which represented a 5.02% decline on a slightly higher traded volume, compared to previous week. Market capitalisation dropped by 5.02%, closing at N11.8tr, from the previous N12.43tr, due to huge losses suffered by bellwether stocks that witnessed high selloff during the period under review.
Top performing stocks for the period were kobo equities that dominated the advancers table especially the second-tier banks and insurance companies, following the possibility of another round of mergers and acquisitions (M&As). A recent pronouncement by the sector’s primary regulator- the National Insurance Commission (NAICOM), giving October 1, 2018 as deadline for consolidation. Some aggrieved shareholder groups have however obtained an injunction from the Federal High Court in Lagos to compel NAICOM to extend the recapitalization deadline to December 31, 2018. This is to allow these companies meet the new capital base. Investors should trade this insurance stocks with caution at this point to avoid being trapped, especially knowing that some may not have successfully recapitalized before the deadline.
Meanwhile, the NSEASI’s year-to-date negative returns worsened further to 15.47%, just as market capitalisation yielded negative returns of N1.86tr, or 13.23% below the year’s opening value.

Bearish Market Breadth
Market breadth remained negative as decliners outweighed advancers in the ratio of 58:13, amidst hefty selloffs among highly capitalized stocks.
The market recorded four down markets during the week. The index started the week on a negative note, losing 1.26%, which was sustained till Thursday after shedding 3.5% at midweek which is the highest daily loss since the prolonged correction started late January, before Friday’s rebound with 0.95% gain, resulting to 5.02% loss for the week, worse than that of previous week.
All sectoral indexes for the period closed red, led by NSE Industrial goods losing 7.6%, followed by Insurance and consumer goods with 5.4% and 5.02% respectively. NSE AseM index was flat.
Market activities for the period were up in volume and value by 7.64% and 41.67% respectively to 960.94m shares worth N18.53bn, from previous week’s 892.73m units valued at N13.08bn.
Law Union & Rock Insurance and Unity Bank were the best performing stocks, chalking 18.52% and 17.72% respectively, to close at N0.64 and N0.93 each, due to low attraction and market forces. The worst performing were CCNN and Universal Insurance with 26.86% and 24.24% slowdown respectively to close at N22.60 and N0.25 each on profit taking and market trend.

Market Outlook
We expect a mixed performance for the market in the new week, as investors continue to trade cautiously in the short-term despite seeming rebound of blue chips stocks after touching their 52 weeks low amidst continued selloff. However, we believe investors can take advantage of the current low prices of stocks with strong fundamentals in order to reap medium-to-long term benefits. Stage by stage buying is advised as inflation figure for August had reversed up and investors are expected interprets and take action in the new week.
There could be repositioning on the strength of earnings in the midst of unfolding events 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, ahead of end of quarter which will ushered in another earnings season, ahead of Q3 interim dividend paying equities in October/ November due to the auditing process of their financials for Q3.
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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Ambrose Omordion
CRO|Investdata Consulting Ltd
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