Reversal Imminent On NGSE, Amidst Worry As Rising Liquidity Not Impacting Most Stocks

Market Update for May 21
Nigeria’s equity market on Tuesday maintained its seeming recovery mode, as the gaining momentum increased, just as volume inched up, driven by the value gain recorded by the three most capitalized stocks on the bourse, even as it maintained a negative breadth.
Trading opened on the Nigerian Stock Exchange (NSE) sharply up in the morning session, extending the three waves on demand for high cap stocks, which was sustained throughout the day. In the process, the benchmark NSE All-Share index touched an intraday high of 30,270.34 basis points, from 29,361.88bps on strong sentiments, breaking out another psychological line of 30,000-mark, closing the day higher at 30,218.14bps.

The four days of the successive rally has been courtesy of last week’s listing of MTN Nigeria Communications Plc by way of introduction. The shares which were listed at N90 each has appreciated by 46.33% in the four trading sessions between last Thursday and Tuesday, May 21, 2019, to close at N131.70 each. This has been blamed on the unavailability of the share and the fact that most of the trading has been via cross deals from the day it was listed.

However, there was an improvement on Tuesday, with investors trading 110.72m shares in 292 deals, a sign that the supply bottleneck is gradually easing after the promoters have moved the price, with many investors becoming cautious about jumping in at this price. Recall that so far, the stock has not been tested as a quoted company in Nigeria.

Meanwhile, members of the Monetary Policy Committee (MPC) held its last regular two-day meeting in the first tenure of Godwin Emefiele as Central Bank of Nigeria (CBN) governor, retaining by majority vote, to retain all the rates: MPR at 13.5%, CRR 22.5% and liquidity ratio 30%. Members opted to watch the inflationary trend, noting with concern, the declining trend in global output growth, which commenced in the second half of 2018, besides the heightening insecurity, planting season and the expected implementation of the new minimum wage.
The committee plans to make credits available for the private sector, through consumer and mortgage credits, reducing money banks participation in government securities in order for the banks to play their roles of providing credit to the people. There are also plans to reduce Non-Performing Loans and the need to protect the banks (READ MORE).

Market technicals for the day were positive and mixed, as traded volume was higher than previous day’s, even as the breadth favours the bears, while strong buying pressure is revealed by Investdata’s daily sentiment report. Buy position stood at 94% and sell volume, 6% of the total daily transaction volume index of 1.12.
The impetus behind the market performance was up but still weak, as shown by the Money Flow Index of 30.67points, from previous day’s 20.47bps, indicating that funds are entering the market as buying interest in MTN and Dangote Cement increases. We note with concern that liquidity is not impacting other stocks for now.

Index and Market Cap
At the end of Tuesday’s trading, the composite NSEASI gained 844.74bps to close at 30,218.14bps, after opening at 29,373.40bps, representing 2.88% growth, just as market capitalization soared by N372.07bn, closing at N13.31 trillion, from its opening value of N12.94tr, which also represents 2.88% value gain. The NSE index is currently trading above its 50-Day Moving Average while touching the upper Bollinger band suggesting an imminent reversal, just as RSI is reading 62.61.
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The upturn was sustained as a result of demand for medium and high cap stocks like MTN Nigeria, Dangote Cement, Guaranty Trust Bank, Forte Oil, Eterna, CCNN and Transcorp, among others. This impacted positively on the Year-to-Date loss, reducing it to 3.86%, just as market capitalization gain soared to N1.74tr, or 13.01%, from the year’s opening level of N11.72tr.

Mixed Sector Indices
The sectoral indices were largely bullish, except for the NSE Consumer goods that closed in red by 0.33%, while the NSE Industrial goods and Banking led the advancers by 2.03% and 0.94% each. Market breadth remained negative as the number of decliners outnumbered advancers in the ratio of 20:16.
Market activities were up in volume and value traded by 56.51% and 116.66% respectively to 335.60m shares worth N17.19bn, from the previous day’s 214.42m units valued at N7.93bn driven by ICT, banking, and conglomerates stocks like MTN, FBNH, Sterling Bank, Guaranty Trust Bank, and Transcorp.
MTN Nigeria and Africa Prudential were the best-performing stocks for the session, as they topped the advancers’ table, gaining 9.98% and 9.44% respectively, while closing at N131.7 and N3.93 per share, on market forces and sentiment. On the flip side, Livestock Feeds and Juli Pharm lost 10% and 9.58% respectively to close at N0.63 and N1.51, purely on profit-taking and market forces.

Market Outlook
We expect the recovery driven by MTN to continue as value investors take advantage of the low valuation to rebalance their portfolio ahead of Q2 numbers, given plans by the CBN to reduce banks’ participation in government securities, while boosting private sector lending to drive economic activities and investment.
More importantly, we expect that the government would sign the federal budget without further delay while changing its disbursement and implementation style in 2019 and beyond for good so as to drive the economy.
Investors look to government’s policy direction as the market faced 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
info@investdataonline.com
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