NGSE Money Flow Index Hits New 3-Year Low, Amidst Selloffs In Large Cap Equities

Market Update for June 25
Tuesday’s was another volatile and choppy session on the Nigerian Stock Exchange (NSE) with the benchmark All-Share index extending its bear=run on a high selling pressure and low traded volume that revealed cautious trading as investors continue to digest the five-year blueprint released on Monday by Godwin Emefiele, Governor of the Central Bank of Nigeria (CBN) and its likely impact on the market and economy in general. One interesting and major highlight of his five-plan for the market is the proposed banking sector recapitalization, which is coming 15 years after a similar exercise by Prof. Chukwuma Soludo, then CBN governor 15 years ago in 2004. Graciously, he also noted the effects of the Naira devaluation over the period on the capital of the banking industry.

The recapitalization plan may not have come entirely as a surprise, especially as many market players had adopted the wait-and-see strategy as the market is about to breakdown a major strong support level. The plan, therefore, foreshadows very interesting times ahead for Nigerian banks, leading to another round of mergers and acquisition.

Investdata recently published a report of four banks with negative retained earnings and in need of urgent fresh capital injection (READ). We also note that many banks may have to undertake share buy-backs and/or share reconstruction exercises ahead of the recapitalization in view of the already unwieldy number of outstanding shares, with Wema Bank, for example having about 38bn and Access Bank, 35bn units.

Above all else, however, the CBN’s entire five-year plan shows the institution’s readiness to address the nation’s gloomy economic situation as it continues to roll out one programmes and interventions for different sectors as a way to propel productivity just to stimulate healthier growth in the country’s manufacturing sector.

Already, the manufacturing sector’s Purchasing Managers’ Index for the month of June as released by the apex bank stood at 57.4 points, weakening from the 57.8 points recorded in May, indicating a slowdown in the all-important sector with implication for jobs at a time household purchasing power remains under threat. The composite PMI for the non-manufacturing sector, however, stood at 58.6 points in June 2019, indicating expansion for the 26th consecutive month. The index also grew at a slower rate when compared to its level in May 2019.

Other economic indicators remain mixed as inflation rose by a faster 11.40%, Monetary Policy Rate is 13.50%, and external reserve has remained sluggish at $45.69bn with oil price at $64.29 per barrel.

Back to the trading activities, the NSE composite index started the day on the downside, a situation that lasted till afternoon due to selloffs in petroleum and banking stocks, just as profit booking hit the insurance stocks that rallied recently as players begin to unveil their delayed 2018 full-year and Q1 earnings reports simultaneously. The index then retraced up marginally to close the session lower at 29,668.68bps, after touching intraday low of 29,655.53 basis points, from a high of 29,814.38bps.

Market technicals were negative and weak with lower volume traded than previous day’s, amidst negative market breadth and sell-offs as revealed by Investdata’s Daily Sentiment Report showing a ‘sell’ position of 92% and ‘buy’ volume was 8% of the total daily transaction volume index of 0.57.
The momentum behind the day’s performance was seriously weak as Money Flow Index read its lowest in three years at 5.58points, from previous day’s 5.61bps, indicating funds had left the market and some stocks in the midst of prevailing low liquidity.

Index and Market Cap
At Tuesday’s trading session, the All Share Index lost 140.52bps to close at 29,668.68bps, after opening at 29.809.20bps, representing a 0.47% decline, just as market capitalization dropped by N61.93bn to close at N13.07tr, from its opening value of N13.14tr, which also represented 0.47% depreciation in value.

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The downturn for the day was due to selloffs in high cap stocks like Seplat, MNTN, Guaranty Trust Bank, Zenith, Nigerian Breweries, FBNH, UBA, Forte Oil, Stanbic IBTC, Dangote Sugar, and Transcorp. This impacted negatively on the Year-to-Date loss position which rose to 5.61%, just as market capitalisation gain also dropped to N1.3tr, or 11.55%, from the year’s opening level of N11.72tr.

Bearish Sector Indices
All the sectoral indexes were in red except for the NSE Industrial goods which closed green at 0.94%, while the NSE Oil/Gas index led the decliners, after losing 2.31%. It was followed by Insurance with 2.06%, next were the Banking and Consumer Goods indexes with 0.93% and 0.08% respectively.

Market breadth turned negative as decliners outnumbered advancers in the ratio of 22:14, just as market activities were down in volume and value traded by 56% and 60% respectively to 253.39m shares worth N4.12bn from the previous day’s 573.67m units valued at N10.21bn. Volume for the session was driven by transactions in financial services stocks like Guaranty Trust Bank, Zenith Bank, Custodian Investment, Access Bank and UBA.

Sovereign Trust Insurance and CCNN were the best-performing stocks as they topped the advancers’ table with 9.52% and 9.47% respectively to close at N0.23 and N13.30 per share, on market forces and low price attraction respectively. On the flip side, Forte Oil and NEM Insurance, lost 9.38% and 8.73% respectively to close at N29.00 and N2.30 per share on market forces and profit booking.

Market Outlook
We expect mixed performance as the end of quarter window dressing by fund managers and portfolio repositioning and balancing for month end and the Q2 earnings reporting season to reverse the trend. As bargain hunters are likely to hit the market any moment from now, while discerning investors are taking advantage of low valuation to position ahead of March year-end numbers and second half interim dividend stocks.

They may also take into consideration the expected economic reforms as government announces its much-awaited new cabinet, just as plans by the Central Bank of Nigeria (CBN) to reduce banks’ participation in government securities is expected to boost private sector lending to drive economic activities and investment.

There is also the likely end of month trading account balancing in the midst of portfolio repositioning in expectation of interim dividend in Q2 numbers, especially banking stocks.

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Ambrose Omordion
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https://investdata.com.ng/2019/06/ngse-money-flow-index-hits-new-3-year-amidst-selloffs-in-large-cap-equities/