Investors Expect Sustained Volatility, Speculative Trading To Indicate NGSE Direction

Market Update for the week ended April 12 and Outlook for April 15-1
Trading activities on the Nigerian Stock Exchange over the past week were mixed, closing lower and extending five consecutive weeks of bear-run. This was despite the seemingly improved buying interest for the period under review while awaiting Q1 scorecards and March inflation data.

We talked about the coming catalysts for Q1 earnings season that are expected to kick off fully next week with two companies presenting their numbers to the investing community.
As we discussed, the NSE and corporate Nigeria have set their minds for a contraction in company earnings in the first quarter, compared to the same period a year ago. This is good for the market because it has set the stage for positive surprises.

Remember, the economy was weak in Q1, with the Purchasing Managers’ Index (PMI) reflecting an expanding economy.
As I mentioned during the week, this is a recipe for solid earnings growth, rather than a contraction.
The first quarter earnings report of Infinity Mortgage Bank has given insight into what will likely come from the banks. The market expected earnings contractions, relative to Q1 of 2018. Will the current low liquidity in the market, despite the signal of recovery fuel the market’s rebound to support level.

Movement Of NSEASI
Meanwhile, Nigeria’s equity market opened the week on a negative note, losing 1.5% as high cap stocks like Dangote Cement, Guaranty Trust Bank, and Stanbic IBTC suffered losses. The trend continued on Tuesday but on a reduce momentum, before turning positive in the last three trading sessions on the back of bargain hunting, given that many stocks were undervalued. This led to daily gains of 0.20%, 0.50%, and 0.73% respectively for Wednesday, Thursday and Friday, reducing the week’s total decline to 0.19%.

Low cap stocks dominated the advancers’ table during the period as blue-chip stocks struggled to rebound after previous weeks of sell-offs and price adjustment for dividends declared. The renewed demand for low, medium and high stocks are expected to impact positively on the market. The only sector that closed higher was the NSE Oil/Gas index with 0.36%, while the NSE insurance index led the losers, shedding 3.08%. It was followed by the NSE Industrial goods’ 0.69%.
The momentum behind the week’s performance was weak, but flat as revealed by money flow index at 31.40 basis points, compared to 31.35bps in the previous week, indicating that funds are exiting the market, just as buying pressure was high at 93% for the period under review.

NSEASI Weekly Time Frame
The composite NSE All-Share index, during the week, resisted further decline on a low traded volume, while at the same time forming a double bottom. This signaled a high possibility of reversal, on improved positive sentiments, amidst a side trendingMoney FlowIndex. Also noteworthy is the fact that the benchmark index is trading below its 20-Day Moving Average, after testing the recent support level of 28,780.02 basis points.

Bearish Sectors Indices
The sectoral performance index was largely bearish, except for the NSE Oil/Gas that closed green, while market breadth was positive with advancers outnumbering decliners in the ratio of 35:31 as in previous week’s down market. Volume and value for the period declined by 50% and 24.68% respectively to 1.77bn shares worth N15.26bn from previous week’s 3.54bn units valued N20.26bn. The decline in sell-off came amid bargain hunting and portfolio repositioning ahead of Q1 earnings season and economic data expectations.
Learn Africa and May & Baker were the best-performing stocks for the period, topping the advancers’ table with 18.7% and 17.39% gains respectively, closing at N1.46 and N2.70 per share on market forces and impact of the dividend. On the other hand, Ikeja Hotel and ABC Transport that suffered the biggest losses of 26.11% and 16.67% respectively, closing at N1.67 and N0.40, as investors took profit.

During the week also, the prices of Guaranty Trust Bank, McNichols, Access Bank, and Custodian Investment were adjusted for a dividend of N2.45, 5 kobo, 25 kobo, and 35 kobo respectively proposed by their directors. Also, investors are already anticipating the bulk of 2019Q1 company earnings reports that will tell how the economy performed between January and March.


Market Outlook
We expect the mixed performance to continue this week due to profit booking from the rally witnessed between Wednesday and Friday last week. We must not gloss over the reality that there is currently no positive trigger to sustain the recent market resurgence. That notwithstanding, we would not overlook the possibility of a bargain-hunting motive supporting positive performance, especially with many fundamentally sound stocks remaining underpriced.
Infinity Mortgage Bank has already kicked off the Q1 earnings reporting season with stronger numbers when compared to prior year’s and yet to reflect on the share price.
With the prices of major blue chips continuing to drop in recent weeks, we expect speculative trading to shape the market’s direction in this trading week, despite the seeming negative outlook.
The volatility witnessed last week was driven by traders and investors repositioning ahead of dividend declaration by major listed companies.

The ongoing volatility will continue as investors and fund managers rebalance their portfolios, with eyes fixed on the political space and ongoing full year company earnings and post-election market dynamics. Investors should review their positions in line with their investment goals, the strength of 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 and 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.
We appreciate all the participants and facilitators that made our Port Harcourt Chart Summit a success. Believing all the strategies discussed will impact positively on their trading if implemented.

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Ambrose Omordion
CRO|Investdata Consulting Ltd
info@investdataonline.com
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Tel: 08028164085, 08032055467
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