Sentiments Remain Negative On NGSE, But Reversal Imminent On Likely Positioning

Market Update for the week ended June 14 and Outlook for June 17-21

Trading activities on the Nigerian Stock Exchange stayed bearish in the past week, consolidating previous week’s down market despite the positive outing on Friday that followed eight consecutive sessions of decline as a volley of selloffs and profit-taking hit highly capitalized stocks.

The week was indeed a period of high political events like the inauguration of the 9th National Assembly and election of principal officers, followed by a celebration of democracy day for the first time on June to commemorate that day in 1993 when Nigeria successfully conducted the most de-tribalized election across the country that produced Chief Moshood Abiola as President. The election was however annulled by the then military junta led by Gen. Ibrahim Babangida.

With the events of last week therefore, it is expected that the legislature and executive arms of government will hit the ground running for another four years. However, even when many had expected President Muhammadu Buhari to announce his first set of appointment and produce his ministerial list that will give a hint as to policy making and implementation direction, it was not the case. The nation may have to now wait as the Federal legislators proceeded on recess until July, at a time the economy is stagnated and looking for stimulus to trigger product activities that will drive growth.

Meanwhile, the general expectation is that since the anointed candidates of President Muhammadu Buhari and his party, the All Progressives Congress (APC) have emerged leaders in both chambers of the National Assembly, there should be cordial relationship between the executive and legislature to advance the course of building this economy again. Nigerians will not expect another season of the blame game, but the right economic policies and persons to implement them.

The quality of cabinet members will show if the government is serious about reducing poverty, insecurity and creating jobs for Nigerians.
The fiscal and monetary authorities must also show strong coordination for regulators in the economy to follow suit and guide against the downside risks already highlighted by the World Bank in its latest publication.

The June 2019 edition of the World Bank Global Economic Prospect (GEP) report released on Wednesday, 4th June 2019, highlighted the sharp deterioration in Global and EMDEs growth momentum in H1’19. It blamed this on the escalating trade tension between the U.S. and China and subdued investment inflows into EMDEs (of which Nigeria is one).

With likely policy-destabilizing developments such as further escalation of trade tensions between the world’s two largest economies, and renewed financial turmoil in emerging economies among others; the World Bank wants policymakers in emerging economies to a) Reinforce policy buffers and build resilience to possible negative shocks b) Implement reforms that will promote private investment and improve public sector efficiency c) Prioritize and implement through cost-effective and private-sector-led solution, efforts to strengthen access to market and technology while boosting the quality of infrastructure and governance d) Effect structural reforms aimed at improving the business climate and also boost growth prospects; and e) Develop well-designed social safety nets and active labour market policies to manage risks and protect the vulnerable groups.

Movement Of NSEASI
Back home, it was a negative outing for the period under review. Trading opened on a negative note, with the NSEASI losing 0.35% on Monday, extending previous week’s selling position which was sustained into Tuesday when the index closed further down by 0.73% due to strong selloffs. The bear run was extended to Thursday after midweek’s public holiday, as the market shed 0.23% before the seeming and marginal rebound on Friday when it gained a marginal 0.08% as high cap stocks resisted further decline. This brought week’s total loss to 1.27%, compared to the previous 2.1% slide.

Last week’s down market impacted year-to-date loss to 4.4%, just as the negative market breadth within the period offers another long term buying opportunities for traders and investors. Trading enters the third week of the month and is expected to usher in the March year-end earnings reporting period and second half of the year for interim dividend-paying stocks.
Low cap stocks dominated the advancers table as ‘sell’ pressure continued on blue-chip stocks and others, despite the low trading activities as a result of low liquidity and confidence. There is also the possible wait-and-see posture by the investing public for the Federal Government’s much-needed economic reforms policies.

The momentum behind the week’s performance was weak, as shown by the money flow index at 18.23 basis points, compared to 17,81bps in the previous week. This indicates that funds are still moving within the stocks, even as sentiments remained negative, with buy position at 11% and sell volume, 89% on a transaction volume index of 0.54.

NSEASI Weekly Time Frame

The selling sentiment for highly capitalized stocks, despite the flat money flow index, revealed profit taking from the recently attempted rebound that was short-lived as investors suspected that the rally was stage-managed immediately MTNN was listed. However, a reversal of the downtrend is imminent as Fibonacci retracement is at 38.2%. The low activities in the market reflected on the Bollinger band as it contracted.
The current chart pattern on the NSE All-Share index supports reversal as it is trading on top of its 20-DMA within Bollinger band, while RSI is reading oversold at 43.36. But then, Money flow at 18.23 points is weak.

Mixed Sectoral Indices
The sectoral performance indices were largely bullish, except for the NSE Industrial and consumer goods that closed lower by 4.15% and 1.66% respectively. The NSE Insurance led the advancers with a weak 0.86% rise; followed by the NSE Oil/Gas with 0.28%, just as the banking index closed slightly up by 0.01%. This reflected the negative sentiment in the market, at a time market breadth remained negative with decliners outnumbering advancers in the ratio of 31:19, to continue the bearish transition.

Transaction activities in terms of volume and value were up 12.97% and 25.82% respectively, to 868.74m shares worth N15.79bn, as against the previous week’s 768.98m units valued at N12.55bn.
The best-performing stocks for the period were Forte Oil and GSK, topping the advancers’ chart with 14.17% and 11.11% gains respectively, to close at N29.40 and N8.50 per share on market forces and sentiment respectively. On the other hand, Nahco and Cutix lost 11.80% and 11.25% respectively, closing at N2.99 and N1.42, on profit-taking and market forces.

Market Outlook
Expect mixed performance and a slowdown in the southward trend as bargain hunters are likely to hit the market any moment from now, while discerning investors are taking advantage of low valuation to rebalance their portfolio ahead of March year-end numbers and second half interim dividend stocks.

They may also take into consideration the expected economic reforms as the new cabinet are set to start running and the plans of Central Bank of Nigeria (CBN) to reduce banks’ participation in government securities while boosting 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 March year-end earnings reports.
Profit taking may persist in highly capitalized stocks due to portfolio restructuring. Hence, overall market performance to remain 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
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