NGSE Index Resists Further Decline, Signals Uptrend, As Market Forces Await Economic Direction

Market Update for The Week ended September 27 and Outlook for Sept 30 – Oct 4
Stocks closed higher on the Nigerian Stock Exchange (NSE) last week after the mixed performance as the benchmark All-Share index found support and recovered from what looked like a clear selloff in the first three trading sessions of the week.

The ASI resisted further decline in the last two trading sessions due to improved ‘buy’ interests in high cap stocks.
However, despite the seeming positive sentiments on Thursday and Friday during the period under consideration, the volume traded was lower than the previous week’s transactions, reflecting the wait-and-see attitude of investors, especially as the coast remains unclear globally as regards the raging trade dispute between the U.S and China.

Oscillation in oil prices has been a source of concern for investors. In the aftermath of all of these signals, the domestic environment is also unsettled, going by the Central Bank of Nigeria’s Purchasing Managers’ Index (PMI) which shows a slowdown in the nation’s manufacturing sector for the month of September at 57.7 points, from 57.9 points in August. 

This economic slowdown is also visible through the lens of the rising unemployment and under-employment in the country, which has reflected in the weak demand for products and services, owing to the very low purchasing power.

The buying pressure on the last trading day of the week under review, and with only one trading session left before quarter-end, fund managers and players hit the ‘buy’ button more often than the sell in order for the market to close higher and end the month positive ahead of the Q3 earnings reporting season. Already, companies have started notifying the exchange and investing public of their closed period and board meeting to approve the Q3 results.

These expected numbers may help lift the market again if only there are improvements in the corporate earnings when compared to the previous quarters. The reasons are not unknown, considering the importance of the Q3 earnings to investors’ decision to hold or sell and the ability of analysts to project the full-year expectations and make recommendations.

Movement Of NSEASI
The composite NSEASI opened the week’s trading on a negative note, losing 0.15% on an extension of the previous week’s mixed and negative stance, a situation that was sustained till midweek. As a result, the benchmark index fell on Tuesday and midweek by 1.09% and 0.25% respectively on a massive selloff, before a rebound on Thursday, when it gained 1.09% to halt the bearish sentiment, helped by demand for Total Nigeria, Seplat Petroleum and Nestle Nigeria.

This positive trend continued on Friday, despite the seemingly mixed trades as it closed 0.35% up on an increasing buying interest in Seplat, Total and Airtel Africa, which brought the week’s cumulative loss to 0.09%, following which the index closed at 27,675.04 basis points, from the 27,698.69bps opening index. This extended the previous week’s loss position of 0.29%.

The mixed trading and sentiments were obvious across the sectors, high cap and blue-chip stocks as portfolio managers and bargain hunters marked up prices for end of the quarter ahead of Q3 scorecards. Market breadth for the week closed negative with decliners outnumbering advancers in the ratio of 42:22.

The momentum behind last week’s performance remained weak but was up as shown in the 29.39bp Money Flow Index, from 21.24bps in the previous week, indicating that funds entered some stocks and the market.

This was as traders and investors took advantage of the low prices of fundamentally sound stocks to position in an expectation of the Federal Government’s reform policies from its new Economic Advisory Council. ‘Buy’ volume during the week was at 93%, while ‘sell’ volume was 7% on a transaction volume index of 0.75.
Within the week, PZ Cussons released its Q1 earnings report for the period ended August 31, 2019, with numbers showing that the company sank deeper into murky waters and below expectation, reflecting the effects of a weak economy and struggling manufacturing sector.

During the week also, the share price of Access Bank, Learn Africa and Guinness Nigeria were adjusted for a dividend of 25k, 15k, and 1.59 kobo, just as Guinea Insurance and Niger Insurance had their share prices lifted from technical suspension after presenting their belated 2018 full-year 2018 and 2019 quarterly results. In the week also, AG Leventis and Continental Reinsurance proposed a buyout of minority shareholders, offering 0.53 kobo and N2.50 respectively.

NSEASI Weekly Time Frame
The chart above shows that the NSE index is signaling uptrend that it had resisted further decline to cross the signal line in the bullish zone on a daily and weekly time frame.

This reversal move will be a function of market forces in the new week after the MACD had formed a double bottom chart pattern that supports the continuation of the trend. We expect bargain hunting to gather momentum in the first week of October as positioning continue ahead of the Q3 financials, despite funds trying to move into fixed income.

Although the NSEASI is trading below the 20-Day Moving Average on a weekly time frame, the index action has formed a systematical triangle that equally supports a reversal of the trend, just as the Relative Strength Index reads 38.75. But then, money flow is reading 29.39 points on the weekly chart.

Mixed Sectoral Indices
The sectorial performance indexes were largely bullish as three of the five sectors closed higher led by the NSE Oil/Gas which gained 11.63%, followed by the NSE Consumer Goods and Insurance indices with 5.03% and 3.01% respectively; while the Industrial Goods and Banking Index closed lower by 1.83% and 1.64% respectively.

Market activities for the week in volume and value were down by 13.39% and 10.99% respectively, as investors traded 1.09bn shares worth N16.62bn, from the previous week’s 1.27bn units valued at N18.75bn. This volume was majorly driven by Access Bank, Nigerian Breweries and Custodian Investment.

The best-performing stocks for the week were Seplat and Continental Reinsurance, after topping the advancers’ table with 21% and 20.5% gains respectively, closing at N556.6 and N1.89 per share on low price attraction ahead of their Q3 numbers and market sentiments for the N2.50 buyout, which represents 93 kobo, or 59.23% premium on the week’s opening price of N1.57 per share. On the flip side, Learn Africa and UACN Property lost 19.42% and 18.31% respectively, closing at N1.12 and N1.16, on price adjustment for dividend and profit-taking.

Market Outlook
We expect a mixed performance as the quarter-end in the new week, amid the gloomy global outlook, seeming political division in the ruling party and profit-taking among others, as funds tend to flow into the fixed income instruments. However, discerning investors should take advantage of low valuation to position for earnings season and inequities that have strong potentials to rebound with the general market. 

It is noteworthy that the market is seemingly resisting further decline while awaiting a positive statement and/or policy direction to move northward.

We would, however, not overlook the possibility of a bargain-hunting motive supporting positive performance, especially with many fundamentally sound stocks remaining under-priced. With dividend yields of major blue-chips continuing to look attractive in recent weeks, we expect speculative trading to shape the market’s direction, despite the seeming negative outlook.

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