Unfolding Confidence Issues In Nigeria’s Capital Market Dampen Investor Outlook

Market Update for June 3
Monday’s trading activities on the Nigerian Stock Exchange extended its mixed and volatile sessions, starting the week on a negative note, with the composite All-Share Index suffering the third successive session of decline, after attempting a rebound on May 28, 2019, as revealed by technical indicators.

The unfolding events in the market have slowed down investors buying interests, as confidence is shaken as investors watch to see developments following the listing by way of introduction of MTN Nigeria on the exchange, on which the Economic & Financial Crimes Commission (EFCC) is currently beaming its searchlight.

Other unfolding events in the market that investors and traders are also keenly observing that have implications on market confidence, include a second court-ordered reinstatement of Mounir Gwarzo, the suspended Director-General of the Securities and Exchange Commission (SEC) by court order (READ), as well as Friday’s removal of Jubril Adewale Tinubu and Omamofe Boyo as Group Chief Executive and Deputy of Oando Plc respectively, owing to alleged infraction of securities regulation (READ).

Already, Oando sought court protection on Monday, when it obtained an injunction restraining the implementation of the SEC’s actions of between Friday and Sunday night, including the appointment of Mutiu Sunmonu, as head of the Interim Management Committee (READ).

Without doubts, all of these further dampened investor confidence.
However, investors at this point should not forget what happened to Cadbury when there were misstatements in its financials, just as the SEC spotted in Oando Plc’s accounts, hence the need for caution when trading the stock. Recall that it took Cadbury Nigeria a long time to recover from the stigma.

Monday’s trading opened on the downside in the morning but retraced up marginally between mid-morning and midday, before oscillating in the early afternoon on profit booking that was evident across all the sectors. It, however, closed the day lower, after the NSE’s All-Share index touched intraday low of 30,867.74 basis points, from its high of 31,100.03bps before finishing at 30,930.39bps on negative sentiment.

Market technicals for the day were negative and mixed as traded volume was higher than the previous day’s, in the midst of negative market breadth and strong selling pressure, as revealed by Investdata’s Daily Sentiment Report showing ‘sell’ volume of 73% and ‘buy’ position of 27% of the total daily transaction volume index of 0.84.
The energy behind the day’s performance was seemingly strong, despite being down slightly, as Money Flow Index soared to 60.52points, from previous day’s 61.52bps, an indication that funds are still entering some stocks, despite profit taking.

Index and Market Cap
The NSE’s composite index at the end of Monday trading lost 138.98bps, closing at 30,930.39bps, after opening at 31,069.37bps, representing 0.45% decline, just as market capitalization dropped by N61.22bn to close at N13.62tr, from its opening value of N13.69tr which also represented 0.45% depreciation in value.
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The downturn was due to profit-taking in medium and high cap stocks like Guaranty Trust Bank, Seplat, Oando, FBNH, ETI, Forte Oil, Julius Berger, Dangote Flour, Dangote Sugar, Wema Bank, FCMB Holdings and Transcorp, among others. This impacted negatively on the Year-to-Date negative position, increasing it to 1.59%, just as market capitalization gain stood at N1.54tr, or 16.09%, from the year’s opening level of N11.72tr.

Bearish Sector Indices
All the sectoral indexes closed the session in red, led by NSE Oil/Gas with 5.74%, followed by Insurance ‘ 0.56%, while Consumer goods lost 0.39%. The banking and industrial goods indexes shed 0.31% and 0.12% respectively. Market breadth was negative as decliners outnumbered advancers in the ratio of 28:15.

Market activities were mixed as volume traded was up 15.57% to 246.09 million shares from the previous day 212.93m units, while value dropped by 12% to N2.83bn from N3.12bn. The day’s volume was driven by financial services, conglomerates and petroleum stocks, like FCMB, GTBank, Oando, UACN, and Zenith Bank.

Champion Brewery and University Press were the best-performing stocks for the day that topped the advancers’ table with 9.90% and 9.44% gains respectively, to close at N1.11 and N1.97 per share on market forces and Q4 earnings expectations respectively. On the flip side, GSK and ETI lost 10% and 9.87% respectively, closing at N7.65 and N10.05, on market forces and profit taking respectively.

Market Outlook
We expect mixed performance to continue, as investors take advantage of cheaper 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.

Investors look to government’s policy direction as the market faced low liquidity problems in pre and post-inauguration 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/2019/06/unfolding-confidence-issues-in-nigerias-capital-market-dampen-investor-outlook/