NGSE Market Momentum Stays Weak, As Airtel Africa Listing May Increase Money Flow

Market Update for July 4
The prevailing negative outing on the Nigerian Stock Exchange continued on Thursday as its benchmark All-Share index slipped lower again on a low traded volume, extending its losing trend for the fourth consecutive sessions in the first trading week of the month of July, as cautious trading persisted and many players adopt the wait-and-see strategy before jumping into, or considering any position looking at the current macro-economic situation of the nation.

The dynamics of the Nigerian bourse is set to change once more following the cross-border listing of the entire shares of Airtel Africa Plc on the Nigerian Stock Exchange on Friday. This is expected over the next weeks to result in an increased money flow as retail and other investors who could not participate in its book building process during the IPO acquire stakes in the group’s operations across 14 African countries, including Nigeria (READ MORE).

The monetary authority has earlier identified low national productivity as one of the major factors slowing down economic growth with recovery remaining slow fundamentals weak as reflected in the economic indices published by Central Bank of Nigeria (CBN) and National Bureau of Statistics (NBS).

It is in reaction to this and a desire to rev productivity and create more jobs among others, that is at the heart of the CBN’s recently released five-year blueprint for the second term of Godwin Emefiele as governor, where it muted plans for another round of banking sector recapitalization.

Although it may not be as intense as the previous one, the exercise seeks to solidify the capital base of Nigerian banks to ensure financial stability under any economic cycle. Also on Monday, the CBN issued a directive that banks increase lending to the real sector, by creating loans that represent minimum 60% of their deposit base (loan to deposit ratio) at the end of September, suggesting that banks could do as much as between 70% and 80% depending on their risk appetite and management strategies (READ MORE).

Although the prescribed LDR is still low when compared to 90% and 75% what obtains in South Africa and Kenya, analysts say there are downsides to the directive (READ MORE). To avoid the problems associated with the new directive, the CBN can also follow through by further empowering the credit bureau to make them more effective to help weed serial debtors from the system, even as the Asset Management Corporation of Nigeria (AMCON) continues struggling to recover its N5tr debt mountain.

However, the CBN directive will, besides boosting market liquidity, drive productivity, create jobs and enhance disposable income needed to increase consumption, while oiling the macro-economic space. The banks will ultimately compete for the same borrowers; interest rate will slightly go down; a situation which on the long run impact positively on the economy and stock market.

Meanwhile, Thursday’s session was volatile still, with the NSE All-Share index opening on the downside and oscillating from the mid-morning to afternoon, before closing the session lower at 29,300.09 basis points on a positive market breadth which was the intraday low from its high of 29,466.94bps.

Market technicals were negative and mixed as volume traded was lower than the previous day’s, amidst breadth favoring the bull, even with high selling pressure as revealed by Investdata’s Daily Sentiment Report. The session ‘sell’ volume was 100% and ‘buy’ position 0% of the total daily transaction volume index of 0.48.

The momentum behind the day’s performance remained seriously weak and low as Money Flow Index ranged along the new three-year low of 4.87points, slightly lower than the previous day’s 4.89bps. This shows that funds are not entering the market as we speak even as the trading size has confirmed, looking at market data.

Index and Market Cap
The All Share index at the close of trading shed 75.16bps, after opening at 29.373.25bps, representing a 0.26% decline, just as market capitalization lost N33.13bn to close at N12.91tr, from its opening value of N12.95tr, which also represented 0.27% depreciation in value.

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The session’s continued downturn was due to profit taking and selloffs in medium and highly cap stocks like MTNN, Guaranty Trust Bank, UBA, Presco, Oandoand Dangote Flour, which had a negative impact on the Year-to-Date loss position that increased to 6.78%. Market capitalization gain also dropped to N1.42trillion or 12.26%, from the year’s opening level of N11.72tr.

Mixed Sector Indices
The sectoral performance indices were largely bearish, except for the NSE Industrial and consumer goods that closed higher by 0.42% and 0.30% respectively. The Insurance topped the decliners with 0.45%, followed by Oil/Gas by 0.29% and banking index was next with 0.12%.

Market breadth turned positive as advancer outnumbered decliners in the ratio of 23:16, as market activities were mixed as volume traded was down by 24.09% to 180.46 million shares, as against the previous day’s 237.71 million units, while value went up by 4.98% to N2.08 billion from the previous day position of N1.98 billion. These transactions were driven by trades in financial services, industrial and conglomerates stocks like Lafarge Africa, Access Bank, UBA, Zenith Bank, and Transcorp
Cutix and Academy Press were the best-performing stocks, after topping the advancers’ table, with gains of 9.22% and 8.82% respectively to close at N1.54 and N0.37 per share, on earnings expectation and dividend payout of 0.05kobo. On the flip side, Presco and Sovereign Trust Insurance lost 10% and 8.70% respectively, closing at N46.80 and N0.21 respectively, on market forces.

Market Outlook
Being the last trading of the week, we expect volatility to continue as bargain hunters and traders to take advantage this pullback buy for half-year earnings reporting season that will kick off any moment in this July. While discerning investors should target value stocks considering the low valuation to position for dividend income from the just concluded March year-end account, ahead of interim dividend from the banking stocks especially.

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 lending to the private sector. This is aimed at reducing banks’ participation in government securities and lending more to the private sector of the economy.

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
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