With Party Primaries Over, Investors Await Economic Blueprints From Contenders

Market Update for the week ended October 5 and Outlook for October 8-12

The nation’s equity market, again succumbed to recent short-term profit booking last week, amidst continued selloffs as political party primaries hot up across the country. This followed the October 7 deadline given by the Independent National Electoral Commission (INEC) for selection of flag-bearers in the 2019 general elections, halting the two-week gains that were driven by low price attraction and bargain hunters’ activities.
Stocks suffered losses Tuesday when trading opened after the public holiday on Monday to mark the nation’s 58Th independence anniversary. The negative close in the NSE All-Share Index declined throughout the week, as investors continued to show concerns over the slow economic recovery.

The CBN’s Economic Report for August shows robust revenue growth, even while it pales into insignificance, when compared to budget projections for the year, which poses a strong challenge for budget funding. Meanwhile, crude oil at the international market has continues to sell at almost $35 per barrel above the 2018 budget benchmark price of $51.
The continued pressure and negative sentiment on emerging and frontier markets are likely to persist with global yields moving higher as the U.S hikes interest rate, thereby boosting its 10-year treasury yield, leaving it at seven-year high of 3.20% on the back of stronger dollar and economy that could lead to higher inflation.

Back home, the negative performance in the first week of the 2018 last quarter further reveals the undervalued nature of the market, with its current Price/Earnings ratio at 9.3x, which is low relative to it peers in Africa and other emerging markets. It also reveals the strong earnings power of many companies listed on the Nigerian bourse.
Sentiment report for the week, showed ‘sell’ volume of 89%, leaving ‘Buy’ position at 11%, while volume index of total transaction stood at 0.44. The high selling pressure was due to profit taking and resume selloff for safety.
The momentum behind the week’s performance remained weak, amidst the low volume traded, despite the slight improvement in liquidity entering the market as reflected in the money flow index at 19.68 points from previous week’s 18.24points.
During the week also, the first Q3 earnings report was released by Infinity Trust Mortgage Bank, alongside PZ that made its Q1 numbers available to the market.

Equity Indicators Last Week
The composite index kicked off the new month and quarter on a negative note to reverse the previous two weeks gains as it lost 383.22 basis points to closed at 32,383.15bps from an opening figure of 32,76.37bps, which represented a 1.17% decline on a low traded volume, compared to prior week. Market capitalisation fell by 1.17%, closing at N11.82tr, from the previous N11.96tr, due to losses suffered by bellwether stocks that witnessed profit taking and selloff during the period under review.

During the period, low and medium cap stocks dominated the advancers table as bargain hunters took advantage of the prevailing low price regime to position ahead of their quarterly earnings that had kicked off with Infinity Trust Mortgage numbers that were released within the week under review.
Meanwhile, the NSEASI’s year-to-date negative returns worsened further to 15.32%, just as market capitalisation yielded negative returns of N1.86 trillion, or 13.23% below the year’s opening value.

Bearish Market Breadth
Market breadth remained negative as decliners outweighed advancers in the ratio of 32:27, amidst profit booking and positioning among all classes of stocks.
The market recorded four trading sessions of down markets during the week. The index started the week on a negative note, losing 0.47%, which was sustained till Friday and resulted to1.17% loss for the week, to reverse the previous week gain.
All sectoral indexes for the period closed lower, except for NSEOil/Gas that moved 1.13% higher; while the NSE AseM index ended flat.
Market activities for the period were down in volume and value by 30.85% and 44.75% respectively to 639.32m shares worth N7.84bn.
The best performing stocks for the week were Cutix and Forte Oilt that topped the gainers chart after chalking 15.57% and 10.22% respectively, to close at N4.73 and N22.10 each, due to bonus of one for one and 20 kobo dividend. The worst performing were Niger Insurance and Law Union & Rock Insurance, which shed 18.92% and 15.38% respectively to close at N0.30 and N0.55 each on profit taking and market trend.

Market Outlook
We expect a mixed performance for the market in the new week, as the coast becomes clearer, following last week’s emergence of candidates for various offices after the party primaries have produced candidates for various elective offices. This is also the Q3 earnings reporting season, as well as discussions around the economic blueprints of the various contenders that would give direction into how the general election in 2019 will play out. 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 the expect inflation figure 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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