Short-Term Rebound Imminent On NGSE, As Investors Await Q3 Financials, Data

Market Update for the week ended October 12 and Outlook for October 15-19

Equities on the Nigerian Stock Exchange in the past week resisted further decline, recording mixed performances on a ranging movements supported by improved market breadth and buying sentiments, which halted previous week’s profit taking and sell-offs. This downtrend has persisted for the past eight months, revealing the behavioral pattern of investors towards various risks, both controllable and uncontrollable.

The seeming reversal as the market closed on bullish note could continue to play out over the coming weeks as investors and traders await more corporate earnings, alongside key economic indicators such as inflation report for the month of September.
Investdata Research notes that earnings and economic performance indicators in the first two quarters of this year have been mixed, reflecting a slowdown in the manufacturing sector, reflecting the implementation of the Federal Government’s Economic Recovery Growth Plan (ERGP). It was widely expected that ERGP would help sustain the recovery tempo after emerging from the recession, despite the rise in oil price well above the 2018 budget benchmark.

The much awaited Q3 numbers are likely to make little or no difference to the NSE’s benchmark indicators, judging by the unfolding events after the just concluded primaries by various parties to select their candidates for various elective positions. This is because investors continue to watch the horizon, notwithstanding the undervalued state of listed equities. It is also not known yet whether efforts by the Securities & Exchange Commission (SEC) to allay the fear among investors over the oncoming general elections. Ms. Mary Uduk, acting director-general of the SEC, while fielding questions at the end of the just concluded World Bank Group and International Monetary Fund Annual Meetings in Bali, Indonesia, on Sunday, said the commission is exploring various avenues to deepen the nation’s capital market (READ MORE).

The global markets during the period under review were mixed, as the 10-year US Treasury Yield hit 3.25% due to the impact of rate hike that characterized the activities of the Federal Reserve Bank. This triggered capital withdrawal from small and emerging market economies. These trends are reinforced by a flight to safety as investors increasingly seek safer instruments or assets that offer more attractive yields, while protecting their long year gains in equities. The expected bottoming out in emerging markets will expectedly redirect capital flow, helping Nigeria’s market post- elections, depending on whether oil prices remain relatively stable and above $70 barrel per day.

Back home, sentiment report for the week, showed ‘buy’ position of 86%, as against the 24% ‘sell’ volume, while volume index of total transaction stood at 0.65, amidst demand for stocks by bargain hunters ahead of earnings season and gradual accumulation of value stocks by investors at the subsisting low prices.
Energy behind the week’s performance, however remained weak, despite the improved traded volume and liquidity that entered the market as reflected in the money flow index at 20.74 points from previous week’s 19.68points.

Equity Indicators Last Week
The All Share Index reversed previous week’s negative position with a gain of 73.83 basis points, closing at 32,456.98bps from an opening figure of 32,383.15bps, which represented a 0.23% growth on an increased traded volume, compared to prior week’s. Market capitalization rose by 0.23%, closing at N11.85tr, from previous N11.82tr, as a result of value gain by medium and high cap stocks.
At the end of the week’s trading, low and medium stocks topped the advancers table as buying pressure increased, as investors and traders cashed out on low price stocks to position ahead of more quarterlyearnings release any moment from now.
Meanwhile, the NSEASI’s year-to-date negative returns reduced to 15.1%, just as market capitalisation yielded negative returns of N1.79tr, or 12.98% below the year’s opening value.

Bearish Market Breadth
Market breadth however remained negative as decliners outweighed advancers in the ratio of 37:29, amidst short- and long-term positioning.
The benchmark index had a mixed performance for the period, as it opened the week on a positive note, gaining 0.21%, but lost 0.11% on Tuesday and Wednesday respectively before retracing up on Thursday and Friday with 0.11% and 0.12% to close the week at 0.23% gain against the previous week loss of 1.17%.
The performance of various sectoral index for the period was mixed as the NSE Banking and Industrial Goods closed up, while others like NSE Insurance, Consumer goods and Oil/Gas were down, while the NSE ASeM index that closed flat.
The week’s market activity was up in volume and value by 43.26% and 25.41% respectively to 915.86m shares worth N9.84bn, from previous week’s 639.32m shares valued at N7.84bn.

Wema Bank and CAP were the best performing stocks for the period, as they topped the gainers chart, chalking 17.86% and 15.99% respectively, closing at N0.66 and N33.00 each, due to market forces and sentiment. The worst performing were First Aluminum and Cutix, which shed 21.43% and 17.35% respectively to close at N0.33 and N3.90 each on profit taking

Market Outlook
We expect another mixed performance this new week, as technical indicators reveal short term rebound is imminent at the very point RSI is reading oversold at 27.51in an upward movement with Money flow index at 20.73, as market resisted further decline ahead of Q3 corporate earnings reporting season, as investors awaits economic and issue based campaign from the presidential candidates of various parties.

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 recommended as investors expect inflation data for September 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
info@investdataonline.com
info@investdata.com.ng
ambrose.o@investdataonline.com
ambroseconsultants@yahoo.com
Tel: 08028164085, 08032055467
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