Continued Losses Drags NGSE Index To New 52-Week Lows, As Earnings Season Winds Down

Market Update for October 29
The high volatility on the Nigerian Stock Exchange persisted Tuesday as the bear-run resurfaced strongly even as the earnings reporting season entered its last few hours. The market remained mixed, despite the fact that many companies rushed to meet the 30-day stipulated period for the release of their quarterly financial reports.
The benchmark NSE All-Share index reversed, wiping out previous day’s gains and gliding to new 52-week lows amid continued selloffs in high cap stocks, despite the NSE’s recent price methodology that has made the market dull and seemingly artificial. We, however, note that the rule has prevented a continuation of the free fall in the composite index.

Despite the impressive Q3 numbers from Nestle and Seplat Petroleum Development Company, whose directors offered N25 and N18 per share interim dividends respectively, their prices remained unchanged, due to 100,000 units rule.
Hopes are high that the Central Bank of Nigeria (CBN) unconventional monetary policy move that seeks to stimulate the economy, by ensuring liquidity is available to the real sector, is expected to result in the cost of funds reduction soon to the nation’s productivity sector. This would eventually support the stock market, improving the performance of listed companies, driving prices. It would eventually enhance liquidity in the stock market, given the restriction on classes of those who can invest in the CBN’s OMO and Treasury Bills.

Considering the importance of Q3 numbers and the performance revealed so far, there is hope that the market would rebound, following which discerning investors and traders should take advantage of these prevailing low prices to start positioning. This will ensure that immediately liquidity returns to the market and economy, prices will go up and they become the first to be in profit.

Meanwhile, Tuesday trading started marginally up in the morning and pulled back between the mid-morning and afternoon on selloffs in banking stocks, especially Guaranty Trust Bank, which hit a new 52 weeks low; MTN Nigeria and Lafarge Africa. These dragged the NSE index to intraday lows of 26,241.35 basis points, before retracing slightly to close the day lower at 26,2444.39bps on positive market breadth. Market technical were weak and mixed, with lower volume traded than the previous day’s, just as breadth favoured the bulls, while sell pressure continued.

Index and Market Cap
The NSE All-Share index at the end of the day’s trading lost 140.05bps to close at 26,244.39bps from its opening point of 26,384.45bps, which represented a 0.53% decline, just as market capitalization drop by N68.18 billion to close at N12.78 trillion, from an opening value of N12.84 trillion, also presenting a 0.53% depreciation in investors’ portfolios.

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Tuesday’s downturn was driven by selloffs in stocks like MTNN, Guaranty Trust Bank, Lafarge Africa, UBA, 0ando, and Forte Oil. These impacted negatively on the NSE’s Year-to-Date loss, which increased to 16.50%, just as it cut YTD market capitalization gain by N1.05bn, representing a 9% improvement over the year’s opening level of N11.72tr.

Mixed Sector Indices
The sectoral performance indexes were largely bearish, except for the NSE Insurance and Consumer Goods that closed up by 0.92% and 0.42% up respectively, while the NSE Industrial Goods index led the decliners after losing 9.98%, followed by the NSE Banking and Oil/Gas indices that dropped by 2% and 0.37%.

Market breadth remained positive as advancers outpaced decliners in the ratio of 13:10; whereas market activities were mixed as volume traded drop by 43.37%, with investors trading 267.9m shares, compared to the previous day’s 485.8m units, while value went up by 183% to N2.77bn, from the previous day N1.08bn. The day’s volume was driven by transactions in FCMB Holdings, Zenith Bank, Guaranty Trust Bank, Access Bank and Sterling.
The best-performing stocks for the session were RedStar Express and Cornerstone Insurance, which topped the advancers table, after gaining 9.88% and 9.76% respectively to close at N4.45 and N0.45 apiece, on improved Q3 numbers and market forces. On the flip side, Chams and Nahco lost 4.35% and 4.08% respectively, closing at N0.22 and N2.35 on profit booking and market forces.

Market Outlook
We expect the losing momentum to diminish, as the market reacts to seemingly impressive numbers released yesterday in expectation of more quarterly earnings reports ahead of month-end portfolio alignments, especially as the NSE’s new lows offer investors opportunities to position for short and medium-to-long-term views. Given that earnings and economic news can change trend at any time, keep your gaze on fundamentally sound and dividend-paying stocks for possible capital appreciation as Q3 numbers giving insight into companies’ position and future expectations.
Also, traders and investors need to change their trading strategies due to the review of the NSE’s pricing methodology, now that all class of equities need uniform 100,000 units to effect any price changes. This may be part of efforts to mitigate the persistent price decline that has seen many stocks trading at between their five and ten-year lows and even more, in recent times.

Discerning investors should latch onto this, meanwhile, as a way of averaging down and recouping their investment immediately a recovery stage sets in, helped by economic policies, when things start to change gradually. In the process, equity prices will be influenced positively, while investors watch for sectors like insurance, banking, Industrial Goods, services, as well as oil/gas that have become defensive in recent times and could go bullish in no distant time.
Furthermore, we note that all eyes are on the newly appointed economic advisory team to settle down quickly and begin churning out policies capable of turning things around.

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