New NGSE Lows Offer Medium, Long-Term Investors, Opportunities To Position For Year-end

Market Update for October 15
It was yet another mixed trading session at the Nigerian Stock Exchange (NSE) on Tuesday with the reversal of previous day’s gain as the bears surmounted the bulls on a strong selling pressure on the back of mismatch of the nation’s monetary and fiscal policy dynamics.

The National Bureau of Statistics (NBS) also Tuesday published Nigeria’s Consumer Price Index for the month of September showing that there was a spike in inflation, after three months of declining rise. We believe that this may just be the early morning signs as prices of goods may rise even higher in the coming weeks as a reflection of the government’s decision to close all of the country’s land borders, as all goods must now come through the air or sea.

This situation is further worsened by the spate of insecurity that continues to negatively affect farmers, many of who cannot return to their farms due to banditry and kidnapping. At the end of September, NBS reported inflation at 11.24%, up from 11.02% in the previous month, with and food inflation up by 1.04% month-on-month, from 0.99% in the previous month to reflect more than 68% rise in food items since the closure of borders in August 20, 2019 (READ MORE).

Given this rise in inflation, the probability of the Central Bank of Nigeria (CBN) achieving it single-digit target and the government projection of 10.81% in 2020 seems unrealistic, considering the impact of the cocktail of border closure, hike in Value Added Tax (VAT) rate from 5% to 7.5%; and an expected implementation of the new minimum wages as labour continues discussions with the government.

At the ongoing Annual Meetings of the World Bank Group, the International Monetary Fund (IMF) has again reiterated warnings that the lingering trade dispute between the U.S and China has left global economic growth at its lowest in a decade. This, expectedly, is a source of serious concern for the world’s central banks and investors generally, given its impact on markets and global economic outlook.

Also, on Tuesday, Seplat announced ongoing talks to acquire the entire shares in issue of Eland Oil & Gas, headquartered in the UK, but has its operational base in Nigeria’s Niger-Delta region (READ MORE).
The Senate also passed the Production Sharing Contract Bill that could see the Federal Government earning an extra $1.5bn in 2020, thereby reducing the quantum of its budget deficit for the period (READ MORE); just as the 2020 Appropriation Bill passed second reading (READ MORE).

Meanwhile, Tuesday’s trading on the NSE opened on a slight upside until mid-morning before pulling back between midday to early afternoon on resumed selloffs in high cap stocks, touching intraday low of 26,510.14 basis points, from its high of 26,567.67bps. It, however, retraced up marginally, closing the session lower at 26,513.65bps.
Market technicals for the day were negative and mixed, with traded volume higher than the previous day’s in the midst of negative breadth and sentiment, as revealed by Investdata’s sentiment reports showing a ‘sell’ volume of 94% and buy’ position of 6%. The transaction volume index for the day stood at 0.80, just as the momentum behind the day’s performance was weak, with the Money Flow Index at 17.25 points, from the previous session’s 17.49bps. This is an indication that funds exited some stocks and the market despite expectations that the earnings season could kick off any time soon.

Index and Market Cap
At the end of Tuesday’s trading, the NSE All-Share Index shed 43.79bps, closing at 26,513.65bps from its opening point of 26,558.10bps, representing a 0.16% drop, just as market capitalization lost N21.32bn to close at N12.91tr, from an opening value of N12.93tr, which also presented 0.16% value loss.
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The day’s decline due to value loss suffered in stocks like MTNN, Guaranty Trust Bank, UBA Plc, Transcorp Plc, GSK, Dangote Flour, and Oando, among others. This impacted negatively on the NSE’s Year-to-Date loss, increasing it to 15.64%, while YTD market capitalization gain fell to N1.11tr, representing a 10.68% improvement over the year’s opening level of N11.72tr.

Bearish Sector Indices
The sectoral performance indexes were largely bearish, except for the NSE Industrial goods that closed 0.83% lower, while the NSE Insurance led decliners after shedding 0.41%; followed by the Banking index’s 0.25% slide. The NSE Oil/Gas lost 0.22%, while NSE Consumer Goods index closed flat.

Market breadth turned negative as decliners outpaced advancers in the ratio of 13:7; while the day’s market activities in volume and value were mixed. Volume was up by 35.12% as investors traded 174.41m shares, compared to the previous day’s 129.08m units; while value dropped by 15.33% to N2.32bn, from Monday’s N2.74bn. Tuesday’s volume was driven by transactions in Guaranty Trust Bank, FCMB, GSPEC Plc, Transcorp Plc, and Access Bank, which that morning announced its deepening penetration into the Nigerian retail banking space where its daily retail loan has grown to N1.0bn per day and N45bn year-to-date (READ MORE).

The best-performing stocks for the day were NAHCO Aviance and CCNN that topped the advancers table, after gaining 5.15% and 4.28% respectively to close at N2.45 and N15.85 each, on market forces and expectation of Q3 scorecards. On the flip side, GSK and Courtville lost 9.86% and 9.09% respectively, closing at N6.90 and N0.22 on selloff and profit-taking.

Market Outlook
We expect the mixed performance to continue as early filers start hitting the market with their Q3 numbers today, as the market’s new lows, just like many equities offer value hunters and investors with medium-to-long-term view, opportunities to buy stocks with good fundamentals, thereby positioning for year-end rewards like dividend income and possible capital appreciation with Q3 numbers given insight of the companies position and future expectation.

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 the 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.

https://investdata.com.ng/2019/10/new-ngse-lows-offer-medium-long-term-investors-opportunities-to-position-for-year-end/#more