Investors Await MPC Outcome, Amidst Hope Of Rate Cut, Budget Spending To Spur Growth

Market Update for September 19
Thursday’s trading activities slowed down on the Nigerian Stock Exchange (NSE), closing marginally in negative territory, after pausing previous day’s gains as profit booking engulfed banking stocks that rallied only recently.
Also, the seeming flat market could be attributed to investors waiting to see the outcome of the rescheduled Central Bank of Nigeria (CBN) Monetary Policy Committee (MPC) meeting. We believe that should the meeting’s outcome, which will be known on Friday afternoon, go the way of the market and analysts, with a cut in benchmark rates, the recent rally in the market will continue ahead of third quarter-end window dressing and the Q3 earnings reporting season.

This is because the ensuing low cost of funds will translate to an enhanced market and system liquidity, which would be boosted by implementation of 2019 budget as Nigeria’s Federal Executive Council continues to approve funds for capital projects. The reduced cost of funds at a time many banks rush to meet the CBN’s 60% loan to deposit ratio that would force them to lend hundreds of billions of Naira, would undoubtedly support productivity and consumption in many ways, going into the near future, just as it could be the tunic needed to spike the country’s economy in the final quarter. The value of an asset that pays higher interest or returns will soar if the monetary policy rate is adjusted down further.

The gradual positioning of smart money at this stage of the market should give discerning investors and traders insight as to where, or how to invest wisely with all eyes on President Muhammadu Buhari’s newly constituted Economic Advisory Council to see their first move and the roadmap that further trigger buying interest among the investing public.
Meanwhile, Thursday’s trading started on a slight upside movement, but there was a pullback in the mid-morning to early afternoon on profit-taking in banking stocks like Access Bank, Guaranty Trust Bank, UBA, and Zenith Bank. This forced the index down to an intraday low of 27,577.69 basis points, from a high of 27,698.44bps, before retracing up, thereby reducing the losing momentum during the session on the buying interests in Ecobank Transnational Incorporated (ETI), Dangote Sugar, Dangote Flour, PZ Cussons, and UACN. The index, therefore, closed the day lower at 27,646.15bps on mixed sentiments.

The day’s market technicals were also mixed, with lower traded volume than previous day’s in the midst of market breadth that favoured the bulls, just as Investdata’s Daily Sentiment Report showed ‘buy’ volume of 57%, while ‘sell’ position stood at 43% on total daily transaction volume index of 1.08. The momentum behind the day’s performance was, nonetheless, weak, despite Money Flow Index at 45.07 points, from the previous session’s 39.07bps which indicated that funds entered some stocks and the market, despite the down market and decline in transaction volume.

Index and Market Cap
At the close of the day’s trading, the benchmark NSE All-Share Index (NSEASI) fell by 35.46bps, closing at 27,646.44bps after opening at 27,681.61bps, representing 0.13% drop, just as market capitalization lost N17.26bn, closing at N13.46tr, from an opening value of N13.48tr, which also represented 0.13% value loss. However, MACD and Money flow index remained bullish and positive respectively. Both indicators continue to look up despite the loss.

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The decline during the session resulted from traders cashing out profit in banking stocks, a situation that impacted negatively on the NSE’s Year-to-Date loss, which increased to 12.04%, even as YTD market capitalization gain dropped to N1.64tr, representing 14.69%, from the year’s opening level of N11.72tr.

Bullish Sector Indices
The sectoral performance indexes were largely bullish, except for the NSE Banking index that shed 1.50%. The NSE Insurance index led the advancers after gaining 2.90%, followed by Consumer Goods with 0.62%, with the Oil/Gas and Industrial goods indices inching up by 0.14% and 0.05% respectively.

Market breadth remained positive as advancers outnumbered decliners in the ratio of 23:16; while market activities in volume and value fell by 35.33% and 68.69% respectively to 245.56m shares worth N1.67bn, from the previous day’s 379.51m units valued at N5.35bn. The day’s volume was driven by transactions in FBN Holdings, Sterling Bank, UBA, GTBank, and Lafarge Africa.
Consolidated Hallmark Insurance and UACN were the best-performing stocks, after gaining 10% and 9.93% respectively to close at N0.33 and N7.75 each, on low market valuation and reactions to the planned divestment from UACN Property. On the flip side, University Press and Neimeth Pharmaceuticals lost 8.70% and 8.33% respectively, closing at N1.05 and N0.44 on profit booking.

Market Outlook
Despite being the last trading session for the week, Friday’s outlook remains mixed with the expected profit-taking from the short rally and ahead of the MPC meeting end and the announcement of its outcome, while bargain hunters take advantage of low stock prices to position, now that index had pulled back. Discerning investors should latch on it to average down and recoup their investment immediately a recovery stage is set through economic policies and things start to change gradually to influence equity prices positively, while investors watch these sectors that have become defensive recently like insurance, banking, industrial goods, services, and oil/gas that will go bullish in no distance time. Also, with all eye fixed on the newly appointed economic advisory council to settle down and kickoff.

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Ambrose Omordion
CRO|Investdata Consulting Ltd
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