Short-term Mixed Outlook On NGSE, Amidst Election Fever, Expected Q4 GDP, Inflation Data

Market Update for the week ended February 8 and Outlook for February 11-15

The benchmark All Share index of Nigeria’s stock market finished last week with a significant gain enough to reverse previous week’s down market after a five-day gain, despite the huge last minute profit taking on Friday that slowed down the bull-run.

During Friday’s session, investors really stepped down their buying interest in the afternoon to erase high proportion of gains earlier recorded. This was a microcosm of the intraday buying trend we have seen in the recent rebound since January 10 shift in the market’s year to date negative position to positive territory. The turn came on the back of expected 2019 dividend declaration by quoted companies with December year end.

The seeming positive sentiment for earnings season and post-election rally which had triggered huge trade volume in recent weeks was despite the countdown and heightened political risk ahead of next Saturday’s Presidential election. This indicates gradual position taking by smart money in the nation financial markets due to a combination of factors such as the high dividend yield of listed companies, high interest rate in the money market and others considered good enough to offset lower yields in developed market. The situation is especially true after the U.S Federal Reserve Bank signaled a dovish stance on rates this year.

There is also the assumption of limited policy changes in Nigeria, should the incumbent President Muhammadu Buhari be re-elected, just as the emergence of Atiku Abubakar, candidate of Nigeria’s main opposition Peoples Democratic Party (PDP) at the ballot, with his proposed economic policy reforms that sound more pro-market.

Last week’s bull-run may be the outcome of investors calculating that they have nothing to lose from either of the candidates after all, especially those taking position in equity market ahead of earnings season.
The election is holding in a week when a major economic report- Nigeria’s Q4 and full year Gross Domestic Product (GDP) and January inflation data will be released by the National Bureau of Statistics (NBS). They will be followed almost by the early filings of corporate earnings.

Factors expected to drive the nation’s GDP and Inflation data include the trend of global crude oil prices in Q4 and January respectively, as well as the lingering trade tension between the U.S and China, in addition to policy normalization in the U.S. We should also not lose sight of the moderate expansion in three major sectors: Agriculture, Industries and Services in Q4 2018 relative to the previous quarter. Inflation rate may likely slide down marginally due to January effect on consumption, school fee paying period and after expenses associated with December and New year festivities.

Back to the market, last week was a positive one, driven by earnings expectations as many market players took position in blue chip stocks, especially banking ahead of the release of their 2018 full year results. The NSE’s benchmark index opened the week on a positive note, gaining 0.35% which was sustained throughout the week with 0.09%, 0.16%, 1.98% and 0.31% respectively, on increasing demand for stocks, bringing the week’s cumulative gains to 2.92%. This therefore wiped off the market’s year-to-date loss, which now standing at 0.32%, after consolidating previous week’s gain.

The mixed sentiment in the last 28 trading sessions in 2019 was due to increased bargain hunting as the NSEASI broke out its first strong resistance level in 2019 to form a double top that supports a pullback due to profit booking in apprehension of next Saturday election outcome.

Momentum behind the week’s performance was up, despite the tension arising from the next Saturday’s Presidential polls, as reflected in the money flow index of 36.51 basis points, as against 27.97bps in previous week. This is an indication that funds are entering the market as volume traded is looking up with increasing number of stocks appreciating in price.

Equity Indicators Last Week
The NSEASI for the period under review gained 893.56bps to close at 31,529.92bps, after opening at 30,636.36bps, touching a high of 31,428.64bps on a very high traded volume that reflected strength. It also revealed a strong buying interest during the week, representing a 2.92% growth. Similarly, market capitalization was up by N333.55bn to close at N11.76tr, up from N11.42tr, representing 2.92% appreciation in value, which impacted positively on the NSEASI’s year-to-date at 0.32%. Also, market capitalization turned positive, at N63.25bn, compared to the year’s opening value of N11.72tr, representing a 0.32% growth.

NSEASI Weekly Time Frame
The market index remained bullish on daily and weekly time frame as MACD has crossed the signal line, as the index closed above it 20 day moving average on a high volume and MFI looking up.

Bullish Sectoral Indices
The sectoral performance indices for the week were largely bullish as they closed higher, with the NSE banking index leading after chalking 8.10%, driven by increased buying interest in Guaranty Trust Bank, Zenith Bank, UBA, Access Bank and Fidelity Bank and Sterling Bank, among others. The Consumer Goods index followed with 4.10% rise on the back of gains by Nestle, Dangote Sugar and Dangote Flour, while the NSE Insurance index garnered 4.00% on the strength of Regency Assurance, Aiico Insurance and NEM Insurance, among others.

Market breadth for the week remained positive, with advancers ’outnumbering decliners in the ratio of 53:21, to halt the previous week’s down market.
Market activities were up in volume and value by 30.42% and 81.80% respectively at 1.89bn shares worth N26.88bn, up from previous week’s 1.45bn units valued at N14.79bn.

The best performing stocks for week were Regency Assurance and Dangote Flour topping the advancers’ table with 19.05% and 18.10% gains respectively to close at N0.25 and N6.85 per share on low price attraction and market trend. On the other hand, Royal Exchange Assurance and Guinea Insurance lost 13.33% and 13.04% respectively, closing at N0.26 and N0.20 on market forces and profit taking after topping the gainers chart last week.

Market Outlook
We believe the market will slow down due to profit booking from early rally witnessed last week which was driven by repositioning ahead of dividend declaration by major quoted companies. As such, we maintain a mixed outlook on the market in the short termover election anxieties. Alongside, the expected release of Q4 GDP and Inflation data reports from NBS.
The possibility of slowdown in position taking on blue-chips stocks for short term gains has increased; however, gains recorded in the two previous weeks are not sustainable in the near term owing to the elevated risk in the domestic and external market.

The ongoing volatility will persist as investors and fund managers reposition their portfolios, with eyes fixed on political space and ahead of full year company earnings position and post-election market dynamics. These are likely to drive prices north, or south, while determining market direction before or after the Presidential Election.

Investors should review their positions in line with their 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 low in the midst of mixed company numbers, weak economic and market fundamentals.

Ambrose Omordion
CRO|Investdata Consulting Ltd
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https://investdata.com.ng/2019/02/short-term-mixed-outlook-on-ngse-amidst-election-fever-expected-q4-gdp-inflation-data/