Reversal Imminent On NGSE, Despite Low Volume, Indecision, As Investors Position For Q2 Earnings

Market Update for the week ended July 12 and Outlook for July 15-19
The nation’s equity market had a mixed performance last week, extending its gloomy state after stock prices declined further to new lows. This forced the benchmark Nigerian Stock Exchange All-Share Index (NSEASI) to make sharp lower lows, closing below the 29,000 psychological line on a continued selloff in highly capitalized stocks that pull the market down. Not even the euphoria of the cross-border listing of 3.76bn ordinary shares of Airtel Africa by way of introduction at N363 each, after an initial public offering through book building.

The increasing uncertain outlook of the economy, especially as the security situation has gone worse in the midst of low liquidity and negative sentiments. This has been of serious concern to both international and domestic investors as revealed by the prevailing low volume of trades. The absence of a cabinet months after the general polls and inauguration of President Muhammadu Buhari for a second and final four-term is another sign that Nigerian leaders do not take the task of repositioning the nation’s economy towards greatness with the required seriousness or protecting the lives and properties of Nigerians. The unsafe business environment will continue to damper confidence and economic activities as the government fails to do needful. The bear run which has so far pushed the nation’s stock market to the ignominious club of the worst performing in the world today, further depicting the state of the economy. So far, the government has only mouthed the need to boost the stock market without doing the needful in real terms, even as the monetary authorities continue its plan to ensure lending to critical sectors capable of boosting jobs and GDP growth.

As earlier noted by Investdata Research, the month of July is a very dicey period that kicks off the second part of the year in the midst of the quarterly earnings reporting season for half-year results. Already, the benchmark NSE index has suffered huge losses so far, recording lows over the last 14 weeks. This week, the second quarter earnings will start flowing in, beginning with big consumer goods making companies.

The monetary authority realizes that the only way to drive economic prosperity is to boost national productivity, hence the recent rollout by the Central Bank of Nigeria (CBN) in times of policy initiatives to stimulate production and consumption needed to oil the wheel of macroeconomic activities. This is expected to impact the economy positively if all the frameworks are put in place and the government reduces its dominance of the debt market, and instead partner monetary to fix the economy quickly.

Movement Of NSEASI
The week started on a positive note, reversing the previous session’s loss, as the NSEASI recorded a marginal 0.07% gain on a resumed cautious trading. This was extended to Tuesday when the index inched up further by 0.10% on a buying interest in the newly listed Airtel Africa Plc. This trend was, however, short-lived at the midweek session as selloff hit the newly listed telecommunication company following the index lost 0.20%. The selling pressure continued on Thursday and Friday, with the index losing 1.9% and 0.51% respectively on massive selloffs in high cap stocks like Nestle Nigeria, MTNN, Dangote Cement and Airtel Africa, the four largest companies on the bourse by market capitalization. This dragged the week’s total loss to 2.41%, bigger when compared to the previous week’s 1.98% slide.

The increase in the losing momentum for the period pushed the year-to-date loss by the NSEASI to 9.11%. Market breadth was negative yet, as selling pressure increased due to the lack of economic direction, even as investors rebalanced their portfolios ahead of the second quarter earnings reporting season, especially for interim dividend-paying stocks.

Low and medium cap stocks were the week’s top gainers, dominating the advancers table after blue-chip remained under intense ‘sell’ pressure in the midst of a low traded volume and the prevailing low liquidity.
The impetus behind the week’s performance was weak, as shown by the money flow index at 17.00 basis points, compared to 15.24bps in the previous week. This indicates that funds are moving among some stocks, even as sentiments remain negative and mixed, with sell volume at 100% and buy position, 0% on a transaction volume index of 0.57.

NSEASI Weekly Time Frame
The negative sentiment for medium and highly capitalized stocks has increased the market’s losing momentum on low transaction volume that reveals accumulation and indecision among players in the midst of a weak money flow index. There were also poor liquidity and negative market breadth that supported the pullback and has formed double bottom signals a rebound any time soon. However, the expected reversal will be a function of the strength of expected half-year results.

Nonetheless, the low transaction volume in the market raises hope for a bull reversal in a bearish trend.
The current chart pattern on the NSE All-Share index supports reversal while trading below its 20-Day Moving Average on the lower Bollinger band, line, while RSI is reading ‘oversold’ at 35.61. But then, Money flow at 17.00 points remains weak.

Bearish Sectoral Indices
All the sectoral performance indexes for the period closed lower, except for the NSE Banking that notched 0.78% higher. The NSE Consumer Goods, however, led the decliners after losing 5.91%, in a week Flour Mills submitted weak numbers for its year-ended March 31, 2019. It was followed by the NSE Oil/Gas index with 3.13%, just as the insurance and industrial goods index closed 2.42% and 2.02% down respectively.
This reflected a selling sentiment, at a time market breadth was negative with decliners outnumbering advancers in the ratio of 39:18, to sustain the down market.

Market activities were mixed as volume was down by 3.88% to 988.49m shares, compared to 1.03bn units traded in the prior week, while value rose by 39.66% to N13.84bn from N9.91bn in the preceding week.
Sovereign Trust Insurance and Union Bank were the best-performing stocks for the period, topping the advancers’ chart with 9.52% and 9.49% gains respectively, to close at N0.23 and N7.50 per share on market forces and low price attractions. On the flip side, Forte Oil and GSK lost 23.33% and 18.33% respectively, closing at N20.70 and N8.30, on selloff and profit-taking.

Market Outlook
We expect bargain hunting and repositioning for half-year earnings reporting season to improve the market outlook this week. This will slow down the southward trend as inflation report for June is expected to hit the market, while discerning investors are taking advantage of low valuation to buy into interim dividend stocks.

They may also take into consideration the expected economic reforms as government announces its much-awaited new cabinet, just as plans by the Central Bank of Nigeria (CBN) to reduce banks’ participation in government securities is expected to boost private sector lending to drive economic activities and investment.

Profit taking may persist in highly capitalized stocks due to portfolio restructuring. Hence, overall market performance to remain mixed amidst positive sentiments and negative breadth.
Market players should maintain a cautious outlook due to low confidence, liquidity and the wait for major economic triggers. Hence, we advise investors to trade cautiously in the short-term, with their gaze fixed on blue-chip stocks that are selling more than 40% below their 52 weeks high. As we look out for a positive catalyst to drive market recovery.

That notwithstanding, we would not overlook the possibility of a bargain-hunting motive supporting positive performance, especially with many fundamentally sound stocks remaining underpriced. With the prices of major blue chips continuing to drop in recent weeks, we expect speculative trading to shape the market’s direction this week, despite the seeming negative outlook.

The sustained volatility will continue as investors and fund managers rebalance their portfolios, with eyes fixed on the political space and post-inauguration market dynamics. Investors should review their positions in line with their investment goals, the strength of 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 and allow numbers 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
info@investdataonline.com
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