NGSE Index Hits 26-month Low, Touches October 2016 Levels, As YTD loss Rises To 11.35%

Market Update for July 18
The free fall of equity prices on the Nigerian Stock Exchange (NSE) continued on Thursday with the benchmark All Share index breaking down its last strong support level of 28,019.97 basis points to touching new 26-month lower lows of 2016 October market position. The index has defied all the Fibonacci retracement levels on strong selloffs across all sectors to extend its seventh successive days of losing on less than average traded volume.

The continued market decline is a clear indication that something is critically wrong with the Nigerian economy, especially looking at the mixed macroeconomic indices revealing weak economic fundamentals, in the form of low market liquidity, the absence of a policy direction. Also, it is clear that the market got to this sorry state, because the government failed to do the needful at the right time and rather has occupied itself with things that have very little socio-economic impact on Nigerians and the need to remove the mass of its citizens from multi-dimensional poverty, according to a recently released UNDP report (READ MORE).

As, we have noted in the past, corporate earnings will, and have indeed started revealing the weak state of the Nigerian economy, giving insights into what Q2 GDP figure will look like, after the Q1 witnessed slow growth, against the backdrop of the fact that two successive quarters of decline amounts to a recession. On Thursday evening, two members of Tony Elumelu’s Heirs Holdings- Transnational Corporation of Nigeria (Transcorp- a conglomerate) and United Capital Plc (a non-bank financial services group) published their half-year result which showed significant over 50% drops in their bottom-lines, reflecting the gloomy state of the economy. Transcorp’s top and bottom-lines were down by 30.2% and 57.6% respectively to N37.76bn and N4.66bn; which those of United Capital for the same period, dropped 16.52% and 15.98%.
The NSE All-Share index opened to the downside on Thursday morning and moved farther between midday to afternoon to consolidate, and touched the session intraday lows at 27,864.49bps, from a high of 28,067.62bps, forming a descending triangle and wedge chart pattern, after which it closed the day lower at 27,864.49bps on a negative breadth.

Market technicals were negative and weak as traded volume was lower than the previous day’s, while breadth favored the bears on a high selling pressure as revealed by Investdata’s Daily Sentiment Report. The session’s ‘sell’ volume was 100%, while the ‘buy’ position was 0% of the total daily transaction volume index of 0.42.
The impetus behind the day’s performance remained seriously weak, as Money Flow Index read 6.74 points, which was lower than the previous day’s 15.34bps, an indication that funds left some stocks and the market, as selloff persisted in high cap and blue-chip stocks.

Index and Market Cap
At the end of trading, the composite NSEASI lost 178.31bps to close at 27,864.49bps after opening at 28,043.32bps, a 0.64% decline, as it broke down the psychological line of 28,000bps. Market capitalization shed N86.9bn to close at N13.58tr, from its opening value of N13.67tr, which also represented 0.64% depreciation in value.
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The day’s decline was due to selloffs and profit-taking in MTNN, Seplat, Zenith Bank, NB, Access Bank, International Brewery, Forte Oil, UBN, Stanbic IBTC, and UBA, among others, which further heightened the negative position of the market. The loss dragged the NSE’s Year-to-Date loss to 11.35%, just as YTD market capitalization gain dropped to N1.86 trillion, or 15.85%, above the year’s opening level of N11.72tr.

Bearish Sector Indices
All the sectoral performance indexes were lower except for NSE Industrial which closed higher by just 0.06%, while the decliners were led by NSE Oil/Gas index after shedding by 4.74%, followed by insurance with 1.69%; next were Banking and Consumer goods that dipped by 1.19% and 0.37% respectively.

Market breadth remained negative as decliners outnumbered advancers in the ratio of 19:12, while transaction volume and value fell by 28.1% and 30.2% respectively to 175.36m shares worth N2.71bn, from the previous day 243.72m units valued N3.89bn. Volume was driven by trades in financial services stocks such as FBN Holdings, Zenith Bank, Sterling Bank, UBA and Access Bank.
Conoil and Dangote Sugar were the best-performing stocks of the day, leading the advancers’ table with 9.76% and 9.22% gains respectively to close at N20.25 and N11.25 per share, on the proposed dividend and market forces respectively. On the flip side, Berger Paints and International Brewery lost 10% each, closing at N6.30 and N15.30 each on bearish trend and selloff.

Market Outlook
Being the last trading day after straight seven sessions of decline, we expect the market trend to slow down at this point and reverse, despite breaking down into the 2016 October position. But as bargain hunters take advantage of the prolonged bearish trend and buy ahead of the half-year earnings reporting season and next week’s meeting of the Central Bank of Nigeria (CBN) Monetary Policy Committee (MPC), as the NSE index had gradually formed a double bottom that supports reversal. 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 the 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.

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Ambrose Omordion
CRO|Investdata Consulting Ltd
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https://investdata.com.ng/2019/07/ngse-index-hits-26-month-low-touches-october-2016-levels-as-ytd-loss-rises-to-11-35/