Expect Mixed Market, As Portfolio Restructuring, Sell Pressure On High Caps Persist
The nation’s equity market last week had a mixed performance, closing marginally on the upside while halting three consecutive weeks of decline and selling pressure. The turnaround was driven by the listing of the nation’s biggest telecommunication company- MTN Nigeria Communications Plc by way of introduction on the Nigerian Stock Exchange (NSE) on Thursday, May 16, 2019 (READ). It thereby impacted the benchmark NSE All-Share index positively and wiping away the accumulated losses in market capitalization, while in two days, reducing the year-to-date negative position of NSEASI to 8.14%.
The market had tested its two-year low within the period, after also touching an intraweek low of 28,019.97 basis points, from a high of 28,918.54bps, reflecting the low confidence level among investors, amidst prevailing poor liquidity in the market.
Ahead of his second term swearing-n ceremony on May 29, 2019, the NSE Index, however, continues to trade well below President Muhammadu Buhari’s first-term inauguration level of 34,310.37bps on May 29, 2015, as the market oscillated for the past four years, leaving investors worse than the government met them.
The NSE benchmark index has suffered a loss of 15.85% loss from May 2015 to date, due to global and domestic geopolitical crisis arising from a combination of unstable economic policies, the recession, currency valuation, poor infrastructure, insecurity, poor implementation of the nation’s annual budgets, resulting from the disbursement style of government.
Owing to these factors, the NSE All-Share index was down in 2015, 2016, but recovered in 2017, only to return to old ways in 2018 and has remained in the red till date, as government’s Economic Recovery & Growth Plan (ERGP) delivered little in terms of the overall expectations. This was due to a lack of commitment and strategic review to assess impact after exiting recession, aided by the new Investors and Exporters (I&E Window) of the Central Bank of Nigeria (CBN) which attracted foreign exchange into the economy and market in 2017, on the back of its promised ease of repatriation. The table below tracks the weekly movement of the NSE ASI for five years.
NSEASI Weekly Time Frame
The NSE index action has been on a serious downtrend since 2018 but attempted a rebound late January and February 2019, on the strength of smart money returning towards the presidential election, but pulled back immediately after. This situation had lasted until last week when the index retraced up after the last uptrend line at 28,019.98bps, resisting a breakdown, even while the index is trading below its 20, 50 and 200-Day Moving Average.
The possibility of its touching the next strong support level of 26,874.46 is high if the last two-day sentiment on the NSE is short-lived.
The current chart pattern on the index supports reversal as it is trading on top of the lower Bollinger band, with RSI reading oversold at 32.14. Money flow at 16.58 point is weak, not minding the upmarket recorded on Thursday and Friday, driven by the listing of MTN Nigeria and ahead of the two-day Monetary Policy Committee (MPC) meeting which begins on Monday.
Expectations are mixed, given the jump in April inflation rate, following which the committee has two options of either maintaining the rate to watch as events unfold, so as to manage inflation that is resurging ahead of this month’s implementation of the new N30,000 minimum wage across the country. The other option is a cut in Cash Reserve Ratio (CRR) to boost lending by banks to the private sector, thereby driving productivity and encouraging more investment.
Movement Of NSEASI
Previous week’s negative outing was extended, as the composite NSEASI closed down sharply on Monday at 0.97% to open the week. This trend was sustained on Tuesday, as the index fell 0.20% on persistent selloffs, while at the midweek it closed 0.48% down as many sold their position even at a loss in anticipation of the MTN Nigeria listing wherein they planned to take a position. The listing finally halted the downtrend on Thursday, as the index gained 0.58%, a trend that continued on Friday when the market notched 1.53%, bringing the week’s total gain to 0.08%, compared to previous week’s 1.25% loss. The gain recorded last week reduced year-to-date loss to 8.14%, thereby revealing buy opportunities in the market, looking at it 52 weeks high and low ahead of March year-end and earnings reports in June.
Advancers table, for the week, was dominated by low cap stocks as selling pressure continue before the listing of telecommunication giant triggered the positive sentiment despite the price adjustment for dividend proposed by Nestle, Okomu Oil, Eterna and Regency Insurance.
The energy behind the week’s performance was weak, irrespective of the upmarket for the period under review as shown by the money flow index at 16.58 basis points, compared to 23.83bps in the previous week. This indicates that funds are still leaving the market, even as MTN Nigeria has sparked a positive sentiment, leading to a buy volume of 95% and a sell position of 5% on a transaction volume index of 0.74.
Bearish Sectoral Indices
All the sector indices were down heavily, led by NSE Banking, which lost 4.31%, followed by Consumer Goods with 4.13%; while Industrial goods, Insurance Oil/Gas closed 3.88%, 3.35% and 2.32% lower respectively. This reflected the sell down for MTN and the anticipated positive news from the monetary and fiscal authorities. Market breadth remained negative with decliners outnumbering advancers in the ratio of 42:16, to halt the three-week down market.
Market activities in terms of volume and value were mixed as turnover fell by 20.94% to 1.17bn shares, as against the previous position of 1.48bn, while value rose from N10.88bn in the previous week to N17.89bn.
Thomas Wyatt and Neimeth were the best-performing stocks for the week, topping the advancers’ chart with 24% and 22% gains respectively, as they closed at N0.31 and N0.61 per share on market forces respectively. On the other hand, Regency Assurance and Forte Oil lost 20% and 18.88% respectively, closing at N0.20 and N28.35, on dividend markdown and profit-taking.
Market Outlook
We expect mixed performance as MTN Nigeria’s influence continues this week, in the midst of expected Q1GDP which is likely to slow down, looking at Purchasing Managers’ Index that dropped to 56.9 points in 2019Q1, from 60.2 points in 2018Q4, and the outcome of the MPC meeting holding May 20/21.
Sell pressure may still persist on other highly capitalized stocks due to portfolio restructuring. Hence, overall market performance to the remain mixed amidst positive sentiment and negative breadth
Market players should maintain a cautious outlook due to low confidence and liquidity, waiting for major economic triggers. Hence, we advise investors to trade cautiously in the short-term, with their gaze fixed on blue-chip stocks that are selling more than 40% below their 52 weeks high. As we look out for a positive catalyst to drive market recovery.
That notwithstanding, we would not overlook the possibility of a bargain-hunting motive supporting positive performance, especially with many fundamentally sound stocks remaining underpriced. With the prices of major blue chips continuing to drop in recent weeks, we expect speculative trading to shape the market’s direction this week, despite the seeming negative outlook.
The sustained volatility will continue as investors and fund managers rebalance their portfolios, with eyes fixed on the political space 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.
https://investdata.com.ng/2019/05/expect-mixed-market-as-sell-pressure-on-high-caps-persists-portfolio-restructuring/
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