Expect Mixed Performance, Slowdown In Loses, As Investors React To Emerging Score-Cards

Market Update for October 22
The free fall of equity prices persisted on the Nigerian Stock Exchange (NSE), despite the new price methodology introduced by the bourse, amidst low liquidity, which propelled the All-Share index to decline on Tuesday.

This situation could have been worse, if not for the fact that prices of highly capitalized stocks remained unchanged to a level of giving any kind of support to the index. Money flow index for the day read 4.04, indicating that funds left the market as some fund managers continue to sell down, irrespective of the ongoing earnings season.

The day’s decline means that the NSE’s Index has remained bearish over the last 15 trading sessions of the month and eight trading days after the introduction of the 100,000 units as volume needed to change price across all classes of equities listed on the exchange, except for one day- October 14, when the market closed green. The indexes showed a pattern of price action that seemingly indicates support selling going on at this price level.

The weak reaction to numbers released so far is due to the systemic risk associated with the nation’s struggling economy. However, despite the fact that all eyes are on the expected earnings reports, the possibility of a change in trend is slim, except there is exceptional news or information from the government and its economic managers strong enough to stimulate a u-turn.

As the chart above seems to indicate, there is indecision among traders and investors, who have become hesitant to trade at this historically low price levels. However, there is no evidence that the next few days will play out as the worse of 2019, given that more numbers are expected as the year gradually comes to an end for portfolio reshuffling and balancing, considering the associated peak of activities during the period, due to the festivities.

So far, earnings announcements have been met with generally weak responses, though mildly optimistic due to the subsisting economic conduction. The banking and other financial service sectors of the market are likely to rally as they post better-than-expected earnings results.

Meanwhile, Tuesday’s trading started on the downside and oscillated in the midday to the afternoon on selloffs in MTN Nigeria, Dangote Cement, and some banking stocks, pulling the NSE’s benchmark index to an intraday low of 26,352.55 basis points, from its high of 26,409.34bps. The index, however, retraced up slightly but finished the day lower at 26,365.83bps on a huge volume.

The session market technicals were negative and mixed as volume traded was higher than the previous day’s in the midst of a flat breadth and negative sentiments, as revealed by Investdata’s sentiment reports showing a ‘buy’ volume of 22% and sell’ position of 78%.

The transaction volume index for the day stood at 2.40, just as momentum behind the day’s performance was seriously weak. Money Flow Index for the day read 4.04 points, from the previous session’s 4.57bps, an indication that fund exited some stocks and the market, as sell down persisted on the earnings release.

Index and Market Cap
At the end of trading, the benchmark index maintained its bearish path, shedding a further 24.25bps to close at 26,365.83bps from its opening point of 26,390.08bps, which represented a 0.09% drop, just as market capitalization lost N11.81tr, closing at N12.83tr, from an opening value of N12.85tr, which also presented a 0.09% value loss.
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The downturn for the day was due to losses suffered by stocks like Dangote Cement, MTNN, FCMB, Wema Bank and Eterna, among others. This impacted negatively on the NSE’s Year-to-Date loss, increasing it to 16.11%, while YTD market capitalization gain dropped further to N1.12tr, representing a 9.51% improvement over the year’s opening level of N11.72tr.

Mixed Sector Indices
The sectoral performance indexes were largely bearish, except for the NSE Industrial goods and Banking that closed higher by 0.19% and 0.09% respectively, while the NSE Insurance index led the decliners, losing 0.32%, followed by NSE Banking that dropped 0.03%. NSE Industrial Oil/Gas remains flat.

Market breadth turned negative as decliners outnumbered advancers in the ratio of 13:12; whereas market activities in volume and value were up, by 182.29% and 474.75% respectively, to 694.12m shares worth N7.83bn, compared to the previous day’s 245.85m units valued at N1.36bn. The day’s volume was driven by transactions in Zenith Bank, Omoluabi MFB, Fidelity Bank, May & Baker, and Guaranty Trust Bank.

The best-performing stocks for the session were Courtville Business Solution and Cutix, topping the advancers table, after gaining 10% and 9.92% respectively to close at N0.22 and N1.44 each, on market forces and low price attraction proposed acquisition of Adswitch. On the flip side, Eterna and Omoluabi Bank lost 9.52% and 9.09% respectively, closing at N2.85 and N0.50 on profit-taking and market forces

Market Outlook
We expect the mixed performance to continue, but on a slowdown as the market reacts to UBA, FBNH, CAP, Africa Prudential and Okomu Oil numbers in expectation of more quarterly earnings reports, especially as 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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https://investdata.com.ng/2019/10/expect-mixed-performance-slowdown-in-loses-as-investors-react-to-emerging-score-cards/