Mixed Trading Still On NGSE, As Uncertainties Over Q2 Earnings Unsettle Investors

Market Update for July 15
Trading activities on the Nigerian Stock Exchange on Monday was sloppy and volatile, consolidating its fourth consecutive day of negative outing as cautious trading and indecision continued ahead of the earnings reporting season that entered its mid-period for full kick off this week.

Transaction volume remained low as selloffs persisted, even as the seemingly positive inflation numbers came in better than expected for the month of June at 11.22%, from 11.40% in the previous month, released at noon on Monday by the National Bureau of Statistics (NBS). On a year-on-year basis, the Consumer Price Index represents the lowest rate in the last 12 months, indicating that key components of core inflation slowed down due to low consumption arising from low purchasing power. This will likely be supported the harvest season which kicks off this period expected to further push the inflation figure down around 11.05%, before a rebound when payment of the new minimum wage kicks off.

The prices of stocks fell, amidst mixed and relatively flat trading on Monday, as investors remained cautious as they await the onset of a highly uncertain earnings season.
Generally, earnings would expectedly be affected by the major market themes of the past several months – a slowdown in productivity, the lack of direction economic direction yet by government, arising from the absence of a federal cabinet to implement the 2019 budget at a time the seventh calendar month of the year 2019 is more than halfway gone. These factors would, without doubts have impacted earnings for the second quarter, possibly drag down revenue and profits.

At this current market situation, trading earnings announcement with gaze fixed on expected economic policies from the government is one way to profit from the market volatility.
However, it can be difficult, at times, getting all the required data needed to make smart trades, especially with the inconsistent release dates of some companies. As an investor or trader, it is expected that you take position before the results are released to the market, and should the numbers be positive and beat expectation, better for you. But note that in a bear market earnings influence on prices are minimal, compared to a bull situation. If the reports are below forecast sell-off immediately to cut loss and protect your capital.

Meanwhile, Monday’s trading opened slightly on the downside in the morning and oscillated in the mid-morning before pulling back between midday and afternoon, touching intraday low of 28,337.52 basis points from its high of 28,577.41bps, before retracing up marginally in the last minutes to close the session at 28,341.03bps on a low traded volume.

Market technicals were negative despite volume traded being higher than the previous day’s, amidst the negative breadth and sentiment as revealed by Investdata’s Daily Sentiment Report. The session’s ‘sell’ position was 99%, while ‘buy’ volume was just 1% of the total daily transaction volume index of 0.41.

The momentum behind the day’s performance remained seriously weak and flat, as Money Flow Index read 14.07 points, which was higher than the previous day’s 13.69bps, an indication that funds are moving around some stocks, amidst the continued selloff in high cap stocks on weak market fundamentals and low liquidity.

Index and Market Cap
The benchmark NSE All-Share index lost 228.76bps at the end of trading, closing at 28,341.03bps after opening at 28,566.79bps, representing a 0.79% decline. Market capitalization shed N110.02bn, closing at N13.81tr, from its opening value of N13.92tr, which also represented 0.79% value loss.

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The downturn was driven by selloffs and profit-taking in MTN Nigeria, Dangote Cement, Total Nigeria, Zenith Bank, Guaranty Trust Bank, FBN Holdings, UBA, Access Bank, Lafarge Africa, and Dangote Sugar. This heightened the negative position of the Year-to-Date loss, bringing it to 9.83%. YTD market capitalization gain stood at N2.09 trillion, or 17.84%, above the year’s opening level of N11.72tr.

Bearish Sector Indices
All the sectoral performance indexes were down, except for the NSE Consumer Goods that closed 0.16% green, while the banking index led the decliners, losing 1.56%, followed by industrial Goods’1.03% slide; while Oil/Gas and Insurance followed with 0.74% and 0.33% slip respectively.

Market breadth was negative as decliners outnumbered advancers in the ratio of 21:10; market activities were up in volume and value traded by 70% and 43% respectively at 175.17m shares worth N2.09bn, from the previous day’s 100.37m units valued at N1.46bn. Volume was driven by trades in financial services and conglomerates stocks such as Wapic Insurance, UBA, Guaranty Trust Bank. Lasaco and Transcorp.

Insurance stocks led both divides of the price movement table, with Cornerstone Insurance and AIICO Insurance closing as the best-performing stocks of the day after topping the advancers’ table with 10% and 7.69% gains respectively to close at N0.22 and N0.70 per share, on market forces. On the flip side, Consolidated Hallmark Insurance and Sovereign Trust Insurance lost 9.09% and 8.70% respectively, closing at N0.30 and N0.21, on profit-taking.

Market Outlook
We expect this trend to reverse very soon, as bargain hunters take advantage of the prolonged bearish trend and buy ahead of the half-year earnings reporting season and MPC meeting. Discerning investors should target value stocks considering the current low valuation to position for dividend income and capital gain, especially as the market’s Price to Earnings ratio is 7.4x, which is well below the 11.1x average of its peers and a five-year average of 13.2x. This revealed value and high upside potentials for a rally.

They may also take into consideration the expected economic reforms as government announces its much-awaited new cabinet, just as Central Bank of Nigeria (CBN) had rollout it plans to boost productivity and investment by instructing the banks to lend more to the private sector. This is aimed at reducing banks’ participation in government securities and lending more to the private sector to drive economic growth.

There is also the likely impact of portfolio repositioning for the second half of the year in the midst of expected Q2 numbers, especially banking stocks.

https://investdata.com.ng/2019/07/mixed-trading-still-on-ngse-as-uncertainties-over-q2-earnings-unsettle-investors/#more