Mixed Market, Amidst Possible Reversal As Investors Await New Cabinet, Budget Implementation

Market Update for the Week Ended June 7 and Outlook for June
It was three consecutive trading sessions of losses last week given the two-day public holiday declared to celebrate the Eid Mubarak, the end of the Islamic month of Ramadan when Muslims fast, pray and give arms.
This halted three consecutive weeks of bull transition that was driven by positive sentiments for heavyweight stocks like MTN Nigeria which was recently listed, while Dangote Cement appreciated, as investors positioned for its dividend payout. That of Nestle Nigeria rallied on the back of market forces.

The week also witnessed a return of liquidity hiccups after the market saw funds inflow with the MTN Nigeria listing. The dwindling investor confidence may not be unconnected with the face-off between the Securities Exchange Commission (SEC) and energy giant- Oando Plc, as investors wait to see how things play out. We will not also rule out the effects of the two court rulings that Mounir Gwarzo, suspended Director-General of the SEC, which are being appealed by the Independent Corrupt Practices Commission (ICPC).
Meanwhile, we see a seeming artificial price movement in the shares of Oando Plc, as if to show that all is well. Investors are unhappy that the company has shortchanged them for many years when it failed to pay a dividend while jerking executive pay. This is however not forgetting the effects of price adjustments in Dangote Cement, Forte Oil, Dangote Sugar, Julius Berger, BOC Gas, NEM Insurance, Law Union Insurance, and The Initiates, owing to the dividends declared by their directors during the period under review.

The ongoing market selloff is also a reaction to the continued unclear government economic policies, in addition, there is a gloomy global economic outlook as the trade dispute between the U.S and China takes another dimension, which the International Monetary Fund (IMF) warns could cut a sizeable chunk off the global economy (READ MORE). There are also uncertainties in the Eurozone ranging from Brexit in the UK to the election in France. All of these have resulted in the World Bank and the IMF downgrading the global economic growth potentials.

Movement Of NSEASI
NSE Index opened for the week on a negative note, a situation that was extended into the last two trading sessions of the period after two days holidays, bringing the week’s total loss to 2.1% at 30,432.13 basis points after opening at 31,069.37bps, just as market worth followed suit as investors lost N281bn, closing at N13.4tr. This impacted the year-to-date loss position, driving it up to 3.18% despite the low traded volume for the period.

The benchmark index has been on the downtrend since 2018 but seemingly rebounded recently, indicating that smart money is returning to the market especially after the listing of MTN Nigeria by introduction, before pulling back in the last five trading sessions. The market situation may be mixed, but the possibility of reversal is high this week, given that the benchmark NSE All-Share index touched an intraweek low of 30,136.14bps from a high of 31,100bps before retracing up to close the three sessions at 30,432.13bps. Note that the NSEASI is currently trading below its 50 and 100-Day Moving Average, with a possibility of touching the next strong support level of 28.020.13bps, is high as it moves to form a double bottom pattern that will support strong rebound.
The current chart pattern on the index remains neutral, trading on top of the mid-line of the Bollinger band, with RSI reading oversold at 45.54 and Money flow at 17.81 points is weak.

Bearish Sectoral Indices
All sectoral indices closed red, led by the NSE Oil/Gas, which lost 5.15%, followed by Insurance with 4.02%; while Industrial goods, banking and consumer goods that closed at 2.89%, 1.28% and 1.21% lower respectively. This is a reflection of profit taking among market players, even as market breadth remained negative, with decliners outnumbering advancers in the ratio of 44:15, to halt the three-week up-market.
Market transactions in terms of volume and value were down to 768.98m shares worth N12.54bn, compared to the previous week’s 1.08bn units valued at N18.11bn.

The best-performing stocks for the week were Champion Brewery and Academy Press that topped the advancers’ chart with 18.81% and 8% gains respectively, closing at N1.20 and N0.27 per share on market forces respectively. On the other hand, NEM Insurance and Capital Oil lost 13.14% and 13.04% respectively, closing at N2.05 and N0.20, on dividend markdown and market forces.

The Federal Government is delaying the announcement of a new cabinet and assignment of portfolios. This a clear cause for worry, given the challenge this may pose to policy formulation and execution necessary to enable the country to respond to global shocks from the above. We know that economic recovery of this nation is tied to the government’s policy and implementation as the market looks to policies and programs that will drive productivity in the real sector, in order to intensity economic diversification and reduce dependence on crude oil earnings.
Also, we expect mixed economic data, as the 2019 budget, which has been approved by the National Assembly and signed into law is awaiting the cabinet for implementation in the remaining part of the year.

Also, the Consumer Price Index for May is likely to hit 11.40% based on current realities, just as Q2 GDP is expected to slow down further, while labor market numbers may increase with the unemployment rate remaining on the high side.
The market may experience low primary market activities even when many companies want to realign their balance sheets, while others are considering fresh capital by way of right issues due to the prevailing low confidence and liquidity as players trading with caution.
Reasons for this are not far-fetched, given what happened to the market and economy in 2015 and 2016 after the government delayed the cabinet appointments and putting in place an economic management team, leading to a recession. This was because there were no deliberate efforts at economic coordination and direction to steer the economy away from what eventually occurred. Once again, tell-tale signs are here already: the oscillating oil price, slow expansion of Purchasing Managers’ Index for the month of May at 57.8 points from April position of 57.7 points, just as April inflation rose to 11.37% in the midst of stagnated economic growth. There is also another noticeable delay by the fiscal authorities to jumpstart this economy again.

With the expected March year-end earnings reports coming this June to usher in Q2 corporate numbers in the first month of the second half of the year, when companies with interim dividend policy will expectedly release their results and reward their shareholders for the period.
Ahead of the corporate earnings and the announcement of a new cabinet byPresident Muhammadu Bahari, discerning investors should capitalize on the prevailing low valuations to reposition their portfolios by buying in stages. At the same time, the should consider averaging down their costs if already in good fundamentally sound stocks with positive technical potentials to rally as the market rebounds and their full year or second-quarter earnings reports hit the market and beat expectations.

This expected company news and external positive stimulus should trigger ‘buy’ interests, while providing a guide for investors to know where to seek returns, depending on their investment horizon. This is especially true of Flour Mills, Honeywell Flour, RedStar Express, University Press, Academy Press, Northern Nigerian Flour Mills, NPF Microfinance, Conoil and Learn Africa are likely to release their full-year scorecards with the possibility of dividend payment.

Traders and investors who understand the importance of combining fundamentals and technical analysis in making investment decisions while trading or investing in the stock market should take this opportunity to position in some sectors for medium and long term returns. Investors should look especially to banking stocks with interim dividend policies, Industrial goods stocks that are selling at a discount, and service companies, which foreign investors prefer to play in, after a careful study of the recent numbers they made available to the market.

Expectations for June and July
• In this month, the strength of the corporate and economic numbers will determine the direction of equity prices, which are already low and awaiting a trigger.
• Expect few full-year earnings as named above to hit the market this June and more quarterly reports in July. These earnings from blue-chip companies may strengthen market fundamentals if liquidity strengthens.
• The ongoing oscillating trend of equity prices as a result of the repositioning of portfolios along the line of positive numbers and profit taking will continue. Also due to lack of direction, the second half of this year will come with mixed sentiments.
• Market outlook for June and July remains mixed as the market awaits economic policy and stimulus and faithful implementation of the 2019 budget despite the anticipated deficit position, even as the Central Bank of Nigeria (CBN)stands ready to sustain its intervention in the foreign exchange market, and to extend various credit facilities to more real sector operators, thereby boosting liquidity and creating more jobs. Also if the rate is further reduced marginally, it will enhance business activities in the second half of this year.
• The sustained low valuation in the market may trigger high demand for stocks as the government rolls out its reform policies very soon. However, there is a need to invest wisely, using value, area of support and resistance, volume spike, when taking decisions as a trader.
• Managing risk and protecting capital at this point is very important, to enable you to determine when to buy or sell, by watching the stocks and the market, using technical tools. Look for investdata daily sentiment report.
• Let numbers released by the companies guide your decision and time to stay in that position


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