Investors Stay Cautious, As Emerging Economic, Oil Price, Indices Blur Economic Outlook

Market Update for September 3
Nigeria’s equity market Thursday managed to extend to three consecutive sessions of bull transition on last minutes price appreciation by medium and high cap stocks to remain in green after the composite All Share index had suffered losses, on a day the National Bureau of Statistics (NBS) published the country’s Q2 GDP data.

GDP for 2019Q2 slipped to 1.94%, confirming the earlier weak and mixed macroeconomic indices, as seen in the half-year results of companies listed on the Nigerian Stock Exchange (NSE).

Given the nation’s GDP slowdown from Q4 2018 position of 2.38% to Q1 2019 2.10% and now 1.94% in 2019Q2 as released yesterday by NBS, simply indicates that the economy has gradually and technically slid into another recession, a situation when an economy records two consecutive quarters of GDP decline (READ MORE).

For investors, therefore, the issue becomes what next? Already, the third quarter of 2019 ends with this month of September, the new Federal Executive Council (FEC) appointed by President Muhammadu Buhari is yet to hold its first meeting, talk more of hitting the ground running, the 2019 budget implementation is still future tense.

The situation is the reason for the caution on the part of investors and traders, given the quantum of uncertainty in the atmosphere
With the increasing uncertainty around the economy, and considering the high debt profile and dwindling national revenue, it is not unexpected that analysts were not expecting real growth in a quarter when other macroeconomic indices, including the Purchasing Managers’ Index, stayed south for two months in the review period, weak and mixed corporate earnings, increased inflation rate.

We are aware that these indicators slowed down due practically to the absence of governance post-general elections when the victory dance dominated the governance space.

It was also a time when there was no economic direction and low liquidity in the system, resulting from the delayed presentation, approval, as well as Presidential Ascent to the 2019 budget. Already, the wait for budget implementation has lingered even till now, even as it has become clear that the 2018 budget underperformed significantly (READ MORE).

Meanwhile, Tuesday’s trading opened on the slight upside and immediately pulled back by mid-morning and lasted till early afternoon before rebounding in the late afternoon on buying interest in banking stocks and others like MTNN, Lafarge Africa and international brewery. However, the index touched intraday low of 27,481.18 basis points, from its high of 27,606.28bps, before closing the day at 27,586.79bps on a high traded volume.

Market technicals for the day were positive but mixed, as volume traded was higher than previous day’s, in the midst of negative market breadth and positive sentiments, as revealed by Investdata’s Daily Sentiment Report, showing ‘buy’ volume at 84% and a ‘sell’ position of 16% on total daily transaction volume index of 1.43.

The energy behind the day’s performance was weak and flat, with Money Flow Index reading 48.31 points, slightly lower than the previous session’s 49.33bps, an indication that funds left some stocks and the market despite the seemingly increased demand for stocks, a situation which slowed down selloff.

Index and Market Cap
At the end of trading, the Nigerian Stock Exchange’s ASI gained a marginal 21.70bps, to close at 27,586.79bps, after opening at 27,565.09bps, representing a 0.08% rise. Similarly, market capitalization was up by N10.56bn, closing at N13.42tr, from its opening value of N13.41tr, which, also represented 0.08% value gain.

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The day’s advance resulted from the demand for stocks like MTN Nigeria, UBA, Access Bank, Lafarge Africa, Ecobank Transnational Incorporated, UACN, International Brewery, Continental Reinsurance, Cornerstone, Mutual Benefits, and Cutix, among others. These slightly reduced the NSE’s Year-to-Date loss to 12.23%, just as YTD market capitalization gain stood at N1.65tr or 14.93%, from the year’s opening level of N11.72tr.

Mixed Sector Indices
The sectoral performance indexes for the session were largely bearish, except for the NSE Insurance and Industrial Goods index that closed 1.79% and 0.085 higher respectively, while the Consumer Goods index led the decliners, shedding 0.36%, followed by Banking, Insurance, and Oil/Gas indexes that dip by 0.34%, and 0.18% respectively.

Market breadth turned negative as decliners outnumbered advancers in the ratio of 18:13; while market activity in volume and value traded were up by 164.01% and 123.95% respectively at 294.41m shares worth N3.5bn, from the previous day’s 111.52m units valued at N1.56bn.

This day’s volume was driven by trades in stocks such as UACN Property, Access Bank, Guaranty Trust Bank, Transcorp and UACN. The bid for UACN and UACN Property Development Company (UPDC) may not be surprising after all, given the announcement of a proposed restructuring by UACN, which will see it divest its entire 64% stake in UPDC to existing shareholders.

According to the joint statement by both companies, UPDC is also seeking to raise fresh N16bn by way of rights to existing shareholders in a bid to paid down its debt considerably, besides selling its portion of the Real Estate Investment Trust (REIT) to existing shareholders (READ MORE).

The best-performing stocks for the day were International Brewery and Cornerstone Insurance which gained 10% and 8.70% respectively to close at N11.60 and N0.25 per share on low price and market forces. On the flip side, Triple Gee and Sterling Bank lost 9.52% and 8% respectively, closing at N0.57 and N2.30 on market forces and profit-taking.

Market Outlook
We expect the mixed performance to continue in the midst of profit-taking and portfolio repositioning. The prevailing low liquidity and oscillating oil price, as Q2 GDP of 1.94% has confirmed the state of the economy as at end of half-year. August Inflation next week will further reveal the current quarter economic position.

There are also the effects of market players speculating ahead of the Q3 earnings reports in October while taking advantage of the seeming improvement in some other economic indices released recently, as well as corporate earnings showing the true position of Nigeria’s listed companies.

However, long-term investors are reshuffling their portfolios in anticipation of interim earnings reports of dividend-paying companies.

Discerning investors should target value stocks considering the current low valuation as they position for dividend income and capital gains, especially as the market’s Price to Earnings ratio remains attractive at 5.45x, which is well below the 8.24x average of its peers and its 9.56x five-year average. The current situation has revealed the existence of value and the high upside potentials for a rally. But then, wait to confirm reversal before jumping into a new position.

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Ambrose Omordion
CRO|Investdata Consulting Ltd
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