Market Update for the week ended May 24 and Outlook for May 27-31

Trading activities on the Nigerian Stock Exchange, on Friday, May 24, closed lower for the first time since Thursday, May 16, 2019. That day’s loss was evidently not enough to result in a weekly loss for the bourse, as the composite NSE All-Share index closed positive for the second consecutive week on mixed sentiments and high traded volume.

The week’s gain was once again driven by Dangote Cement and MTN Nigeria, the NSE two biggest stocks by market capitalization, as they appreciated in value, especially newly listed MTN Nigeria, which rallied for six straight trading sessions, before slowing down on profit booking. This was also due to investors revaluing the stock at the current market price.
Across the market and sectors, premium index and industrial goods sector led with 14.09% and 6.12% gains respectively, following cross deals and high demand for MTNN, and the positioning by investors for the final dividend proposed by Dangote Cement.

Last week also, the Central Bank of Nigeria (CBN), on Monday and Tuesday, held the last its Monetary Policy Committee (MPC) meeting in the first tenure of Godwin Emefiele as governor, and it was very obvious that members were unhappy with the behavioural pattern and growth of the economy. They agreed that stable and realistic economic growth can only be achieved by stimulating productivity driven by the private sector with an enabling business environment. This is why the committee is looking at the possibility of compelling banks to increase private sector lending to drive expansion or risk a ban from participating in the juicy government securities market.
During the week also, the National Bureau of Statistics (NBS) published the much awaited 2019Q1 GDP report, showing that Nigeria’s economy grew by a slower 2.01% than the 2.38% reported year-on-year in 2018Q4.
Also, the global stock markets had a mixed performance, reflecting the worsening trade dispute between the U.S and China, the world’s biggest economies, in the midst of Brexit negotiations that last week consumed Prime Minister Theresa May. Mrs. May has announced her intention to resign her office, further heightening apprehension by investors.

Movement Of NSEASI
Back home, the week’s trading opened on a positive note as the NSEASI gained 1.7% on Monday on strong buying interest for MTN Nigeria, which was sustained into Tuesday when the index closed further up by 2.90% due to bargain hunting and competition between MTN and Dangote Cement for investor interests. The Bull Run was extended to midweek and Thursday as the market gained 3.07% and 1.07% respectively on increased demand for Dangote Cement, Nestle and Guaranty Trust Bank stocks, before pulling back on Friday, when it shed 1.88%. This was due to profit taking and the return of sanity to the market, bringing the week’s total gain to 6.86%, compared to the previous week’s positive position of 0.08%. Last week’s gain reduced year-to-date loss to 1.75%, just as the negative market breadth within the period offers buying opportunities for traders and investors. Trading enters the last week of the month and is expected to usher in the March year-end earnings reporting period and the swearing-in of President Muhammadu Buhari for his second term in office.
High and low cap stocks dominated the advancers table as selling pressure continued on blue-chip stocks and others, while there were price adjustments for dividend proposed by Cadbury and UACN.

The momentum behind the week’s performance was weak, notwithstanding of the seeming bull-run in the period under review, as shown by the 11.78 basis points money flow index, compared to 16.58bps in the previous week. This indicates that funds are still leaving the market, even as bargain hunting for MTN Nigeria, Dangote Cement and Nestle have sparked positive sentiment. Buying sentiment remained mixed, with buy position at 66% and sell volume, 34% on a transaction volume index of 1.08.

NSEASI Weekly Time Frame
The strong buying sentiment for trillion cap stocks, despite the weak money flow index, continued its rebound last week after 17 months of decline with various attempts to rebound, after touching a strong support level of 28,019.98bps after trading on the lower Bollinger band. The index is currently trading above its 20Day Moving Average, after touching the 200-Day Moving Average.
The current chart pattern on the index supports reversal as it is trading on top of its 20-DMA within Bollinger band, while RSI is reading oversold at 48.16. Money flow at 11.78 points is weak, not minding the upbeat recorded within the week, driven by economic data, the outcome of MPC meeting and bargain hunting for MTN Nigeria, Dangote Cement, Nestle, and GTBank.

Mixed Sectoral Indices
The sector performance indices were largely bearish, except for NSE Industrial goods and Insurance that closed higher by 6.12% and 1.185% respectively, while the NSE Consumer Goods led the decliners by 2.98%; followed by NSE Banking with 1.82%, just as the Oil/Gas index that closed lower by 0.65%. This reflected the mixed sentiment in the market, at a time market breadth remained negative with decliners outnumbering advancers in the ratio of 40:30, to continue the bullish transition.
Transaction activities in terms of volume and value were up 44.95% and 223.67% respectively, to 1.7bn shares worth N57.9bn, as against the previous week’s 1.17bn units valued at N17.89bn.
The best-performing stocks for the period were Thomas Wyatt and MTN Nigeria, topping the advancers’ chart with 29.39% and 28.56% gains respectively, to close at N0.40 and N140.00 per share on market forces and sentiment respectively. On the other hand, Consolidated Hallmark Insurance and Sterling Bank lost 20.69% and 17.20% respectively, closing at N0.23 and N2.07, on profit-taking.

Market Outlook
We expect mixed performance as MTN Nigeria’s influence slows down, even as it the company’s management admitted Saturday that the process of listing its shares is under scrutiny the country’s Economic & Financial Crimes Commission (EFCC), a situation that may dampen investor confidence. There is also the likely end of month trading account balancing in the midst of portfolio repositioning in expectation March year-end earnings reports.
Profit taking may persist in highly capitalized stocks due to portfolio restructuring. Hence, overall market performance to remained mixed amidst positive sentiments 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-inauguration 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.

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Ambrose Omordion
CRO|Investdata Consulting Ltd
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https://investdata.com.ng/2019/05/profit-taking-may-persist-in-high-cap-stocks-amidst-portfolio-restructuring-march-end-accounts/