NGSE Indices Bleed Further, As Investors Await 2019 Budget Assent, Liquidity Crisis Worsen

Market Update for May 13
Trading on the Nigerian Stock Exchange remained very volatile and bearish on Monday, extending its six consecutive days of negative outing on increasing momentum of loss and strong selling pressure.
The NSE’s benchmark All-Share index was hard hit as most blue chip and all sectoral indexes suffered losses due to continued selloffs resulting from the mixed global economic outlook as the China-U.S trade war remains a potent threat.

In Nigeria, there are the impact weak market fundamental, insecurity and lack of economic direction still, ahead of the May 29 inauguration of President MuhammaduBuhari for a second term of four years. It however important to note that the 2019 budget is still awaiting Presidential assent to become law, just as investors are waiting to see the new cabinet members and the clearance of Godwin Emefiele as Central Bank of Nigeria (CBN) governor has not gone down well with some cartels.

The prevailing low liquidity and confidence have not helped matters as the number of companies exiting the market are higher than new entrants. Currently, 169 companies are quoted on the NSE, with nine new listings in five years, while 32 companies were delisted within the same period. Of this, six were voluntary de-listing, while 23 were regulatory, while three others were due to takeovers, mergers, and acquisitions.
Some other companies are already on the line to de-list for the reasons best known to them, knowing that the economy and operating environment have remained unfriendly.

Also, market development in the form of increasing participants or players have been poor since inception, today according to the NSE, there are just about three million Nigerian retail investors on the exchange out of a 180m population, the same number that has been bandied year-on-year, since the pas:t two decades, or more. It is not much of a big task for the NSE management to give real figures, rather than resorting the error of throwing numbers. Conscious efforts are also needed to grow the number as part of promoting financial inclusion, while enhancing confidence in the market and attract a new crop of investors, rather than depending on foreign or institutional investors to play the market that will develop our economy.

We must, as a nation, stop paying lip service to matters of the capital market, economic development, and growth and do more on investment education. The Securities and Exchange Commission (SEC) and NSE must encourage the training of Nigerians to be wealth creators, rather than destroyers by collaborating with independent investment research training companies, enabling them to make more impact, rather than continually depending on foreign investors.

Monday’s trading started on the downside in the morning and extended to the mid-morning and afternoon session after banking and insurance stocks suffered losses that forced the NSE’s benchmark All-Share Index to touch an intra-day low of 28,434.44 basis points. This was after it broke down the strong support level of 28,500bps, from the day high of 28,876.87to close the day lower at 28,434.44bps.
Market technicals for the session were negative, as volume traded was lower than the previous day’s in the midst of negative breadth and high selling pressure, as revealed by Investdata’s daily sentiment report. Selling volume stood at 93% and buy position, 7% of the total daily transaction volume index of 0.50.

The momentum behind the day’s market performance was weak as shown by the Money Flow Index of 15.47 points, from previous day’s 23.72bps, indicating that more funds are leaving the market as selloff continue. This is coming ahead of next week’s meeting of the Monetary Policy Committee (MPC), and unfolding events in the political environment.

Index and Market Cap
The Composite Index NSEASIon Monday, lost 363.37bps to close at 28,484.44bps, after opening at 28,847.81bps, representing a 1.26% decline, just as market capitalization went down by N140.86bn, closing at N10.7tr from its opening value of N10.84tr, which also represented 1.30% depreciation in value. The day’s numbers were impacted by the delisting of the entire 634m ordinary shares of Newrest ASL from the market.

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The continued downturn was as a result of selloffs in stocks like Dangote Cement, Nigerian Breweries, Guaranty Trust Bank, Zenith Bank, Stanbic IBTC, 11 Plc, Dangote Sugar, UBA, Access Bank, Oando, FCMB, and Wema Bank, among others. This impacted negatively on the Year-to-Date loss, which heightened to 9.37%, just as market capitalization decline soared to N1.24tr, or 8.77%, from the year’s opening level of N11.72tr.

Bearish Sector Indices
All the sectoral indexes were in red, with NSE Banking and insurance having massive sell-offs that create new entry opportunities. Also, market breadth was negative in the ratio of 30:11.

Market activities were mixed as volume was down by 8.74% to 214.68m shares, as against Friday’s 235.23m units, while value went up by 104.71% to N2.78bn, from the previous day’s N1.36bn. The day’s volume was driven by conglomerates and financial services stocks UACN, GTBank, UBA, Sterling Bank and Transcorp
The best-performing stocks were Neimeth Pharm and Okomu Oil, which gained 10% each, closing at N0.55 and N77.00 per share, on the back of expected earnings and dividend income respectively. On the flip side, Chams and NEM lost 10% each, closing at N0.36 and N2.25, owing to profit-taking and market forces.

Market Outlook
We expect a slowdown and mixed performance to continue as market players reposition their portfolio ahead of the release by the National Bureau of Statistics (NBS) of the April inflation and Q1 GDP data, alongside the MPC meeting holding on May 20/21. More importantly, we expect that the government’s disbursement and implementation style in 2019 and beyond will change for good so as to drive the economy.
Investors look to government’s policy direction as the market faces low liquidity problems in the ongoing Q1 earnings reporting season, vis-à-vis market and economic fundamentals.

The drop in prices of major blue chips in recent times has created entry opportunities, following which we expect speculative trading to shape the market direction going forward.
The ongoing volatility will continue as investors and fund managers rebalance their portfolios, with eyes fixed on political space and ongoing quarterly earnings position and post-election market dynamics. Investors should review their positions in line with their investment goals, the 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 to 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/ngse-indices-bleed-further-as-investors-await-2019-budget-assent-liquidity-crisis-worsen/