2018 Recap, 2019 Outlook: Taking Advantage Of Low Prices, Opportunities, Uncertainties
It was a rough year for Nigeria’s Stock market in 2018 as many investors were left to leak their wounds, cutting short the unprecedented performance of the benchmark All-Share index in 2017, which continued until January 17, 2018. The decline arose from multiple headwinds ranging from continued rate hike in developed economics that trigged capital outflow from emerging markets like Nigeria, owing to mixed macroeconomic indices from the dwindling economic activities.
We cannot however rule out the risk associated with the 2019 general elections as Nigeria’s political environment which is weighing on stock prices, many of which hit 52-week low despite the resistance in December, the third green month in the year under review.
The last month of 2018 was impacted by the historic seasonal Santa Claus and year-end rally which had closed positively for the first time in the decade between 2009 and 2018.
We expect that most of those headwinds would not linger in 2019. Instead, they will be replaced by a few tailwinds that will be discussed in the New Year outlook.
However, it’s obvious that during the pre-election year lack of concrete economic policies to give direction and coordination of economic recovery growth plan of the government was also a major factor that affected domestic and international investors confidence as economic activities declined in the first two quarter of 2018, when the Central Bank of Nigeria (CBN) Monetary Policy Committee (MPC) could not meet in Q1 due to the lack of requisite quorum. Recall that the National Assembly did not confirm the President’s nominees, following the after some members had served out their term.
Add this to the fact that the CBN retained its benchmark Monetary Policy Rate (MPR) at 14% all through the year, a situation that was made worse by the delayed passage of the 2018 budget and its implementation.
The composite NSE ASI in 2018 shed all of 6,812.69 basis points to close at 31,430.50bps from its 38,243.19bps opening figure, representing a 17.81% decline, after hitting a high of 45,321.82bps and low of 30,506.79bps within the year.
Trading for the year 2018 started on a positive note in January, which was characterized by strong buying pressure and positive sentiments that overflowed from 2017, when share prices (especially blue chips), volume and value recorded new highs, as virtually all the indices rallied.
There was however a reversal of this trend in the following month with a pullback that lasted for all of 10 months, touching a low of 30,506.79bps in December, before retracing up to experience mixed performance to extend the periods of bear market (most notably from February to November).
These trying conditions made the early second half of the year quite uninteresting for many traders, especially with the end of the year rally to halt the bearish trend and close the month of December green. The Santa Clause rally effect was visible in the exchange in the final trading sessions of the year.
NSE MONTHLY INDEX MOVEMENT FOR 2018
The bearish ascendance and falling equity prices were in line as the NSE ranked among the worst five performing exchanges in the world, as players record huge losses during the year. The change in market sentiments offered insights into the 2018 decline, which supported the mild and mixed quarterly earnings reports and weak macroeconomic indices. It therefore discouraged more investors and traders from the market as reflected in the yearly Investdata sentiment report showing sell volume of 94% and 6% buy position, as against the 2017 buy sentiment of 91% and sell volume of 9%.
The market’s downtrend lasted for nine months after the first month of the year and had an upside and decline in February till May before closing up in June.
The other leg of the market which is the primary market had low activity, compared with the previous years as Rights Issues, Initial Public Offerings were few due to uncertainties and low investor confidence in the market.
The market’s sectoral indices performance were bearish, with all 11 indexes closing the year in red, led by the manufacturing indexes like the NSE Industrial and Consumers Goods declining by 37.40% and 23.28% respectively to topped the chart.
Others followed as revealed by the chart above.
Available data shows that market liquidity was low due to continued exit of foreign and institutional players. This also revealed how very dependent Nigeria’s stock market and economy has remained on foreign funds which tends to dictate economic prosperity and wealth creation by their movement in and out of the market at any time. Knowing the danger of foreign investor dominance in any stock market, local investors and traders should plan their trades for 2019 in case they return before or after the elections in the New Year.
2018 Return Performance
Listed below are the best performance stocks in terms of price appreciation despite the downtrend experienced in the 2018.
A total of 25 stocks closed green, with 16 of them growing their share prices by over 20%, compared to 65 equities that advanced in value, 12 of which recorded triple-digit price appreciation in 2017. Also, nine stocks recorded between 1.30% and 15.76% capital growth for the same period. The top five best performing stocks were: Cement Company of Northern Nigeria’s 104.21%; Unity Bank had 101.89%; while Sterling Bank, NEM Insurance and Learn Africa recorded capital growth of 75.93%, 62.65% and 54.55% respectively.
A further breakdown showed that the Industrial Goods and banking stocks dominated the best performance table for the year 2018, a situation that may likely continue in the New Year with other stocks that had suffered losses within the period, rebounding on low attraction ahead of the 2018 full year earnings season in Q1 2019 and outcome of the February Presidential elections, despite weak economic fundamentals.
On the flip side, more than 69 stocks were on the year’s worst performing table, dominated by Insurance stocks as the new pricing rule of the exchange was implemented and also unimpressive numbers from these companies further depressed their share price to become kobo stocks. Others were due to mixed earnings, negative sentiments and general bearish trend in the market as a result of earlier factors mentioned above.
The top five worst performing stocks for the year were: Lafarge Africa, which lost 72.27% of its opening price for the year; AG Leventis, 61.43%; while Universal Insurance, Sumu Assurance and FTN Cocoa were down by 60% each. See the table below.
What to expect in the New Year
The pre-election year left most equities on the Nigerian Stock Exchange (NSE) grossly undervalued owing to the free fall prices strength of negative sentiment, weak economic fundamentals and mixed scorecards from listed companies, even as data by the National Bureau of Statistics (NBS) showed that Nigeria’s economy had decline in two consecutive quarters before the recent Q3 GDP data revealed growth. The Q4 data may likely look up due to the festive season and end of year activities, amidst the electoral season spending.
We expect that the Central Bank of Nigeria (CBN) in the New Year would review its monetary policy stance as part of stabilizing price, while checking inflation even at the detriment of economic activities and export drive.
The return of foreign portfolio investors this year depends on the outcome of election and whether the present government is returned, or a new one successful installed come May 29, 2019.
Nigeria’s external reserves is already threatened by the production cut put in place by the Organisation of Petroleum Exporting Countries (OPEC) in December, amidst the decline in oil prices at about $52 per barrel, which is way below the Federal Government’s 2019 budget benchmark of $60pb. The is also the issue of a cut in the government’s spending plan, which has given insight into what will happen, as government revenue may suffer setback, besides the worrisome implementation style of the yearly budget which has not helped matter before now. The sad thing is that under the present government, the situation would likely persist unfortunately at a time the nation is in dare need of more jobs for its army of unemployed and underemployed populace.
In the New Year, investors should keep their gaze on blue chip stocks in the banking, services, conglomerates, industrial goods, energy and consumer goods sectors, most of which suffered huge losses, despite recording earnings uptrend in the previous financial year-end and are still having strong earnings power enough to further drive their prices in 2019.
The bearish trend may likely continue this year, but the 2018 full year earnings reporting season would drive valuation and prices within a short period and calls for proper timing to know to when to take position and when to exit, in order to protect capital.
The global economic outlook for 2019 remains unpredictable as factors militating the economy are many, ranging from politics, falling commodities prices, trade war tension, Brexit and others likely to shape the world as policy changes continue across U.S, Europe and the Middle East.
Investors should plan their trading and investing in the New Year by sticking to instructions and rules while taking advantage of low prices and navigating between opportunities and uncertainties in 2019. These, as well as “10 Golden Stocks to buy in the New Year” were copiously discussed. Investors and traders can however access them in the home study pack of INVEST 2019 TRADERS &INVESTORS SUMMIT (live class) you can play on your phone and laptop.
This is the time to effectively combine fundamentals and technical tools for taking decisions by knowing the support and resistance levels for repositioning or exiting any position. The equity market is in phases, you must know the various cycles so as to manage your trading and investment risks.
Also, for stocks that should be on your BUY list in this season as the New Year begins, sign up to INVESTDATA BUY AND SELL signal setup by calling 08032055467.
Get your home study pack on INVEST 2019 Traders & Investors Summit and ride with the expected recovery on Nigeria’s stock market and economy to help you invest and trade knowledgeable in this New Year.
You can also access stocks analysed in the INVEST 2019 traders & investors summit home study pack, which includes stock picks for the year to guide your positioning as trading for the year kicks off on Wednesday, January 2, 2019.
Other comprehensive training materials on stock Trading and Investing for Financial Independence series are available for you to view on your mobile phone, laptop, desktop and Tv. Kindly call or send yes to 08032055467, 08028164086 or 08111811223.
Don’t Miss out.
Best regards
Ambrose Omordion
CRO | Investdata Consulting Ltd
info@investdataonline.com
info@investdata.com.ng
ambrose.o@investdataonline.com
ambroseconsultants@yahoo.com
Tel: 08028164085, 08032055467
https://investdata.com.ng/2019/01/2018-recap-2019-outlook-taking-advantage-of-low-prices-opportunities-uncertainties/
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