Reversal Ahead, As Investors Target NGSE Value Stocks, Position For Q2 Score-cards

Market Update for July 16
Tuesday’s was yet another selloff session on the Nigerian Stock Exchange (NSE) as the benchmark All-Share Index extended its bearish run for the fifth consecutive day on negative sentiment and high selling pressure in blue-chip stocks, as the political risk arising from the lack of direction from the government continues to constrain investment decision. This, among others, has been further worsened by the rising insecurity challenges across the country.
The continued failure of the Federal Government to provide economic direction through reform policies that can stimulate productivity, just as the absence of a cabinet for effective governance has taken a toll on the economy, even as the business environment remains largely unfriendly.

Meanwhile, the Central Bank of Nigeria (CBN) has over the past two years focused on monetary stability, resulting in a 7.5% decline in consumer price index over the period; a rise in foreign exchange reserve; and currency stability. In this regard, the bank has done well, helped by a slowdown in prospects for U.S$ denominated interest rate, which has taken the pressure off emerging market currencies for now, despite the fluctuating crude oil price.
However, the nation’s stock market continues to reverberate in the sliding indices following which is daily reflecting in the very volatile and mixed sessions. The composite NSE index started slightly down in the morning and oscillated between midday to afternoon, before pulling back and touching intraday low of 28,138.50 basis points from its high of 28,566.41bps. It finally retraced up marginally to close the day at 28,200.88bps on lower than the average trading volume.
Market technicals for the day were negative and mixed as volume traded was higher than the previous day’s, amidst negative breadth and high selling pressure as revealed by Investdata’s Daily Sentiment Report. The session’s ‘sell’ volume was 85%, while ‘buy’ position was just 15% of the total daily transaction volume index of 0.52.

The energy behind the day’s performance remained seriously weak and flat, as Money Flow Index read 14.97 points, which was higher than the previous day’s 14.07bps, an indication that funds are moving around some stocks, amidst the continued selloff in high cap stocks on weak market fundamentals and profit-taking in kobo stocks.

Index and Market Cap
At the end of Tuesday’s trading, the composite index lost 140.15bps to close at 28,200.88bps after opening at 28,341.03bps, representing a 0.49% decline, while market capitalization lost N68.3bn, and closing at N13.74tr, from its opening value of N13.81tr, which also represented 0.49% depreciation in value.
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The day’s decline was due to selloffs and profit-taking in MTN Nigeria, Zenith Bank, CCNN, FBN Holdings, Flour Mills, Forte Oil, UBA, Access Bank and Stanbic IBTC, which further heightened the negative position. The loss dragged the NSE’s Year-to-Date loss to 10.28%, just as YTD market capitalization gain dropped to N1.76 trillion, or 17.32%, above the year’s opening level of N11.72tr.

Mixed Sector Indices
The sectoral performance indexes were largely bearish, except for the NSE Consumer Goods and Insurance that closed higher by 0.54% and 0.06% respectively, as Industrial index led the decliners after losing 2.16%, followed by Oil/Gas wit 0.97%; and next was banking index that slipped by 0.78%.
Market breadth was negative as decliners outnumbered advancers in the ratio of 32:10; market activities were mixed as volume traded was up by 25.31% to 217.13m from the previous day’s 175.17m units, while value fell by 15.61% to N1.8bn from Monday’s N2.09bn. Volume was driven by trades in financial services, ICT and conglomerates stocks such as FBN Holdings, Courtville, UBA, Transcorp, and Zenith Bank.
Redstar Express and LASACO were the best-performing stocks for the day after topping the advancers’ table with 9.81% and 9.69% gains respectively to close at N5.71 and N0.34 per share, on dividend payout. On the flip side, CAP and CCNN lost 10% each to close at N24.75 and N13.05 respectively on the selloff.

Market Outlook
We expect the market mood to likely change, 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 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
info@investdataonline.com
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https://investdata.com.ng/2019/07/reversal-ahead-as-investors-target-ngse-value-stocks-position-for-q2-score-cards/