NGSE Indicators In Steep Fall, As Investors Take Profit Amidst Uncertainties, Lack Of Stimuls

Market Update for September 4

The volatility and mixed trading that has become the hallmark of the Nigerian Stock Exchange (NSE) in recent months became even more intense on Wednesday as share prices declined again, halting three consecutive days of seeming bull-run.

The loss recorded by heavyweight stocks wiped out previous day’s gain, dragging the benchmark index down on a high transaction volume. To add fuel to the fire, the nation’s productivity and consumption are on the decline as revealed by the Q2 GDP numbers, which came lower than expected (READ MORE).

The one step forward and three steps backward movement of the Federal Government’s economic blueprint termed Economic Recovery and Growth Plan (ERGP) which helped the nation out of recession in 2017 may now need an urgent review by the newly constituted Federal Executive Council (FEC).

Investdata has always expressed the belief that growth and recovery in the quantum required to pull millions of Nigerians out of poverty cannot be attained with Nigeria’s GDP swinging to and fro with the current spate of policy summersault, poor implementation style, and inaction.

The dwindling investor confidence has returned to the Nigerian Stock Exchange (NSE), after a few days of rally witnessed in the aftermath of the reconstitution of the long-awaited federal cabinet. This waning confidence level has slowed down, as foreign and domestic investors wait to see how the new cabinet will revitalize the ERGP to stimulate economic activities again.

This is also the anticipation of new economic reform policies from different ministries for various sectors and industries to give directions which will guide decision making by the investing public. 

Already, the Federal Government is going ahead with its tax-rebate for infrastructure development, for which Babatunde Fowler, the chief executive of the Federal Inland Revenue Service (FIRS) says 10 indications of interests have been received so far (READ MORE).

Meanwhile, trading at the midweek opened on marginally on the upside and oscillated till mid-morning before pulling back between the midday and afternoon on profit-taking and selloffs in highly capitalized stocks.

The benchmark NSE All-Share Index touched intraday low of 27,283.67 basis points, from its high of 27,606.85bps, before closing the day lower at 27,319.64bps

Midweek’s market technicals were negative with volume traded lower than previous day’s, in the midst of negative market breadth and high selling pressure, as revealed by Investdata’s Daily Sentiment Report. ‘Sell’ volume was 89%, while ‘buy’ position stood at 11% on total daily transaction volume index of 1.22.

The momentum behind the day’s performance was weak with Money Flow Index reading 47.98 points, lower than the previous session’s 48.31bps, an indication that funds left some stocks and the market on profit-taking and resumed selloffs in some high cap stocks.

Index and Market Cap
At the end of Wednesday’s trading, the NSE benchmark index lost 267.15bps, closing at 27,319.64bps, after opening at 27,586.75bps, representing a 0.97% decline, just as market capitalization shed all of N129.96bn, closing at N13.29tr, from an opening value of N13.42tr, which also represented 0.97% depreciation in value.

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The session’s downturn was due to profit booking and selloffs in heavyweights like Dangote Cement, MTN Nigeria, Nestle, GTBank, NB, FBN Holdings, UBA, Access Bank, Dangote Flour, Oando, Forte Oil, Eterna, and Honeywell, among others.

These impacted negatively on the NSE’s Year-to-Date loss which climbed to 13.08%, just as YTD market capitalization gain fell to N1.34tr or 13.04%, from the year’s opening level of N11.72tr.

Bearish Sector Indices
All sectoral performance indexes closed lower, except for the NSE Industrial Goods index that pointed 0.29% northward, while the Consumer Goods index led the decliners, after losing 2.19%, followed by Insurance index that declined by 1.02%, and next was Oil/Gas and Banking indexes that dip by 0.79% and 0.74% respectively.

Market breadth remained negative as decliners outpaced advancers in the ratio of 18:13; while market activity in volume and value traded fell by 14.93% and 8.86% respectively at 250.45m shares worth N3.19bn, from the previous day’s 294.41m units valued at N3.5bn. Volume was boosted by trades in stocks such as Access Bank, whose audited half-year results are still being expected; Lafarge Africa, Zenith Bank, which is proposing to repurchase its $500m Notes before the 2022 due date (READ MORE); FBNH and Transcorp Plc.

UACN and UACN Property were the best-performing stocks for the day, after gaining 9.89% and 9.76% respectively to close at N5.00 and N0.90 per share on the back of their low price attractions and the proposed restructuring/divestment (READ MORE). On the flip side, Guinness Nigeria and Ikeja Hotel lost 9.90% and 9.79% respectively, closing at N37.30 and N1.29 on market forces to hit 12 years low and profit-taking respectively.

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.

The current low price to earnings and return ratios that had characterized valuation in the market reveals high upside potentials of many stocks ahead of the Q3 earnings reports in October and last quarter of year activity, by 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 that can support.

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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