Expect Mixed Performance, On More Q3 Accounts Inflow, Amidst NGSE’s New Lows

Market Update for October 17
At Thursday’s trading activities on the Nigerian Stock Exchange, the composite All-Share index oscillated to make a new 52-week lower lows, with the market maintained its southward movement on mixed sentiments. This was due to the prevailing low confidence that has hampered liquidity and continues to influence trading negatively, irrespective of the ongoing earnings season.

The divergent movement of the market’s index and the volume traded as revealed by on-balance volume (OBV), which signals the possibility of reversal when more earnings reports hit the market and there are positive reactions to these financials as well as fundamentals of these companies. It is, therefore, very important that traders and investors keep their gaze on fundamentals, developments around the market, and the economy at large. This stems from the fact that the two-year market correction has, so far, made equity prices cheap enough, following which the expected Q3 numbers are likely to support share prices and dividend payment at the end of the financial year-end. The quarterly scorecards should guide investment decisions and approach in selecting stocks to position in.

The global markets continued their mixed performance, reflecting uncertainties around the world’s economy. But, with the spirit of deal-making, after the U.S. and China came to terms on a (limited) trade deal last Friday, the UK and EU leaders did the same yesterday. Already, the currency markets, as a gauge, are responding positively. Both the Euro and the Pound have been rising all month in anticipation of a deal, as we have been headed toward the impending October 31 deadline. Listening to the press conferences yesterday, the tone of the UK/EU deal sounds much like the tone of the U.S./China deal, with either side (of the deals) capitulating to get it done and move on.

It seems that all parties involved have come to the realization that not only is global economic sentiment eroding, but it is also beginning to show up in the data, which if left to evaporate, it would be very dangerous for the global economy. Perhaps that is why both Europe and China had similar comments to make about the respective deals: China’s Vice Premier said it is about “peace and prosperity for the whole world.” The President of the European Commission said yesterday that the deal is about “people and peace.”

Meanwhile, Thursday trading started on the downside and was sustained throughout the session as first-tier banking stocks suffered losses to push the index to an intraday low of 26,429.94 basis points, from its high of 26,472.20bps. But the market retraced up slightly in the last minutes of the day to close lower at 26,456.29bps on low traded volume.
Thursday’s market technicals were negative and mixed as volume traded was higher than the previous day in the midst of positive breadth and seemingly improved buying interest, as revealed by Investdata’s sentiment reports showing a ‘buy’ volume of 62% and sell’ position of 38%. The transaction volume index for the day stood at 0.69. The momentum behind the day’s performance was weak, with the Money Flow Index reading 12.35 points, from the previous session’s 19.52bps. This is an indication that funds left some stocks, despite the increased buying interest and a marginal decline in the market.

Index and Market Cap
The All-Share Index, at end of Thursday trading, shed 15.91bps, closing at 26,456.29bps from its opening point of 26,472.20bps, representing a 0.06% drop, just as market capitalization lost N7.74bn to N12.89tr, from an opening value of N12.89tr, which also presented 0.06% value loss.

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The day’s downturn was due to selloffs and profit-taking in stocks like Guaranty Trust Bank, Zenith Bank, Lafarge Africa, UBA, Dangote Flour, and Transcorp Plc, among others. This impacted negatively on the NSE’s Year-to-Date loss, increasing it to 15.83%, while YTD market capitalization gain fell to N1.16tr, representing a 9.88% 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 higher by 0.73% and 0.07% respectively, while the NSE Banking index led the decliners, after losing 0.86%. It was followed by the NSE Industrial goods that shed 0.08% while NSE Oil/Gas was flat.

Market breadth turned positive for the day as advancers outnumbered decliners in the ratio of 11:8; whereas market activities in volume and value were mixed. Volume was up by 5.08% as investors traded 144.09m shares, compared to the previous day’s 138.47m units; while value dropped by 28.25% to N2.9bn, from the previous day’s N3.6bn. Tuesday’s volume was driven by transactions in GTBank, FBNH, Fidelity Bank, Zenith Bank, and UBA.

Wapic Insurance and Chams were the best-performing stocks, as they topped the advancers table, after gaining 9.38% and 9.09% respectively to close at N0.35 and N0.24 each, on recapitalization moves and market forces. On the flip side, Cornerstone Insurance and UBA lost 8.41% and 2.52% respectively, closing at N0.34 and N5.80 on profit-taking and market forces

Market Outlook
Despite being the last trading of the week, we expect the mixed performance to continue, but on a slowdown as more Q3 numbers flow into the market, especially with the NSE’s new lows offer traders and investors opportunities to position for short and medium-to-long-term view. 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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