Mixed Performance, Speculative Trading, As Investors Position Full-Year Earnings

Market Update for the week ended November 9 and Outlook for Nov 12-16

The first full trading week in the month of November on the Nigerian Stock Exchange (NSE) recorded a strong buying pressure, closing on a positive note, while resisting further decline after retesting the last recent support level at 31,949.33 basis points on a lower traded volume. 

The undulating movement observed during the period reflected the level of indecision among players amidst portfolio repositioning and rebalancing continued ahead of the release of October inflation reports, as well as the Q3 GDP Figure and the year-end’s Santa Claus rally.

The long awaited wage increase has finally come through, with the Federal Government accepting to pay a N30,000 minimum wage, representing 66.67% increase from the current N18,000, even as the government’s revenue profile remains low, despite the recent oil rally. Implementation of this new wage may be delayed since no timeline is assigned and the government is still borrowing to finance its 2018 budget that had not in any way reflected on the economy.

The nation’s debt to GDP ratio seems low at between 20-25% but the high proportion of revenue used to service these debts is of major concern for investors and Nigerians. At the same time, corporate earnings reports released for the third quarter ended September 30, 2018, reveal the sliding earnings power of companies, thereby signaling the possibility of dividend cut across companies in some sectors.

The current market position technically supports a rebound after forming a double bottom which is subject to market forces, because the narrative has not change. Any breakdown of the support level of current NSE All-Share Index will provide great opportunity for discerning investors and traders to make money and recoup their losses.

Market players that understand market dynamics of investing in equities can without being emotional use history, patterns, seasons and cycle as a strategy for success.

Pullbacks and oversold position of the market and stocks offers a great chance to scoop great stocks, just as our medium and long-term view is bullish on the market and we feel that further pullbacks will offer great buying opportunities for the short and long run.

Nigeria’s market joins its counterparts around the globe, as major equity market posted week-on-week gains with the exception of China’s Shanghai Composite Index. In the U.S., the Dow Jones Industrial Average chalked 2.89% week-on-week; NASDAQ, 0.73%; and S&P 500, 2.12%, despite closing low on Friday. In the UK, the FTSE gained 0.02%; while the Japanese NIKKEI notched 0.03%, even after closing lower on Friday.

Back home, trading opened for the week on a negative note losing 0.24% on Monday which was reversed on Tuesday when the composite index gained 0.33%, before Wednesday’s 0.14% slide. On Thursday the market retraced up by 0.37% again, after which it shed 0.09% Friday. This brought the week’s total cumulative gain to 0.23%, as market sentiments turned positive in the midst of profit taking and portfolio reshuffling.

Market technicals for the period were positive and mixed, on low volume traded and negative market breadth, with strong buying pressure as revealed by Investdata’s weekly Sentiment Report, showing a buy volume of 82% and sell position of 18%. The volume index of total transactions within the period was 0.80.

The energy behind the week’s performance were weak despite the demand for highly capitalized stocks as money flow index fell to 31.07bps, from 39.46bps in previous week, an indication that funds are leaving the market and some stocks on low liquidity.

Equity Indicators Last Week
The NSE All-Share index for the week gained a marginal 75.27 basis points to close at 32,200.21bps, after opening at 32,124.93bps, representing a 0.23% growth, after touching a high of 32, 253.44.11bps, from low of 31,949.33bps on low volume. Similarly, market capitalization closed at N11.76tr, from an opening value of N11.73tr, representing 0.23% value gain.

NSE ASI WEEKLY TIME FRAME
The blend of low, medium and high cap stocks topped the week advancers chart as buying interest was rekindle during the period under review.

Meanwhile, the NSEASI’s year-to-date negative returns reduced to 15.8%, just as market capitalization dropped to N1.84tr, or 13.98 % below the year’s opening value.

Mixed Sectors Indices
The sectorial performance indexes for the period were largely bearish, except for the NSE Consumer Goods and Oil/Gas that closed high. Market breadth was negative, with decliners outnumbering advancers in the ratio of 39:27, halting the bullish transition.

The week transactions in volume and value were down by 14.95% and 10.57% respectively to 1.08bn shares worth N18.2bn from the previous week 1.27bn units valued at N20.35bn, boosted by trading in financial service, consumer goods and Oil/Gas sector.

UACN and NPF Microfinance were the best performing stocks for the period, as they gained 11.11% each at N10.00 and N1.50 per share, on low price attraction and positive sentiment, while Mutual Benefits and Flour Mills lost 23.33% and 16.76% respectively to close at N0.23 and N15.40 on profit taking and reactions to their weak Q2 earnings reports.

Market Outlook
We expect mixed performance as speculative trading continue to shape activities in the short-to-medium term. However, any position taking now should be for medium-to-long term horizon especially in stocks with good fundamentals, while watching the political space, since Q3 numbers have given insights into what the expected Q3 GDP and full year company earnings power will be.

These are likely to drive prices north, or south, while determining market direction before or after Presidential election.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,
We advise investors to allow numbers guide their decisions while repositioning in any stock, especially now that stock prices remain volatile amidst mixed company, economic and market fundamental.

The huge decline in stocks from its January 2018 peak has not necessarily been due to the fundamentals of quoted companies, but investors flight for safety over uncertainties arising from next year’s general elections, participants will learn from experts/facilitators at the workshop, how and where to position for juiciest returns, depending on investment horizon.

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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