Uncertainties, Selloffs, Drag NGSE Index 23% Lower YTD, As Nigeria Moves To Steer Away From Recession

Market Update for April 6
Monday’s trading activities on Nigerian Stock Exchange (NSE) had a very volatile and mixed sentiment, extending the previous week’s negative stance with the benchmark All-Share index closing lower on a less than average traded volume.
This came at a time the number of new Coronavirus cases continues to rise on daily basis, remaining a source of concern to the government and investors, given the lockdown and its effects on the economy, although it is applauded as worthwhile to curtail the spread. Nigeria has so far recorded five deaths and 238 cases, from which 60 have been discharged.
However, the virus has continued to ravage stock markets, economies and businesses across the globe, following which Nigeria’s President Muhammadu Buhari has approved measures to cushion its effects. Chief among these is a US$150m withdrawal from the sovereign wealth fund to augment revenue allocations to the three tiers of government in the coming months when public revenues are projected to hit new lows.

Owing to coronavirus pandemic-induced down stock market crash, international rating agencies have continued their downgrade of the economy from stable to negative, while IDR is lowered to stable rating. This occurred on Monday, the same day as the Minister of Finance announced the Federal Government’s proposed N500bn crisis intervention fund, for which it sought approval from the National Assembly. The fund is expected to support the nation’s healthcare infrastructure especially in the battle against the deadly virus and after, besides rescuing an economy that is already weather-beaten by effects of the virus, and to steer off the course of another recession so soon.
During Monday’s trading session, Lafarge Africa and FBN Holdings released their 2019 full-year audited results offering N1.00 and 38 kobo dividend of per share respectively, just as more companies announced of their respective Annual General Meeting dates, especially those that had earlier postponed theirs due to government restriction because of the COVID-19 outbreak.

Oil prices at the global market slowed down as the Organisation of Petroleum Exporting Countries and top non-members like Russia postponed an earlier announced emergency video conference meeting slated for Monday till Thursday, April 9, as Russia and Saudi bickering reemerged. The delay raised concerns over whether major producers can agree on output cuts to enhance the price, even as prospects of the meeting had sent crude oil prices skywards last week to $34 on hopes for a big supply cut.
Meanwhile, Monday’s trading on the Nigerian Stock Exchange opened on the upside until mid-morning before oscillating in the middy to the afternoon on selloffs among the high cap stocks, which pushed the NSE’s composite index below the 21,000 psychological line as it touched intraday lows of 20,651.59basis points, from its high of 21,208.95bps. It thereafter retraced up slightly to close the session lower at 20,669.38bps on positive breadth.
Market technicals were negative and mixed, with higher volume traded than the previous day, while breadth favoured the bulls on a high selling pressure as revealed by Investdata’s Daily Sentiment Report, showing ‘sell’ volume of 93%. ‘Buy” position stood at 3% on a total daily transaction volume index of 0.76. The momentum behind the day’s performance was seriously weak, despite Money Flow Index inching up to 8.60 points, from the previous session’s 7.98ps, indicating that funds entered the market and some stocks, despite the down market.

Index and Market Caps
At the close of Monday’s trading, the NSE All-Share index gave up 425.24 basis points, closing at 20,669.38ps, from the 21,094.62ps it opened, representing a 2.02% decline, just as market capitalization lost N221.61bn, closing at N10.77tr from the N10.99tr it opened, which also represented a 2.02% depreciation in value.
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Monday’s downturn was impacted by selloffs in Dangote Cement, Seplat, Stanbic IBTC, United Capital and Transcorp which impacted negatively on the NSE index, increasing its Year-To-Date loss to 23%. Market capitalization YTD decline stood at N2.17tr, representing a 17.08% fall from the year’s opening value.

Mixed Sector Indices
The sectorial performance indexes were largely bullish, except for the NSE Industrial Goods and Oil/Gas indexes that closed lower by 7.23% and 4.93% respectively, while the NSE Banking index led the advancers after gaining 2.61%, followed by the NSE Insurance and Consumer Goods that closed 1.94% and 0.55% up respectively.
Market breadth turned positive as advancers outnumbered decliners in the ratio of 21:13, just as market transactions in volume and value terms rose by 42.98% and 38.62% respectively as investors exchanged 336.43m shares worth N4.13bn, from the previous trading session’s 235.3m units valued at N2.98bn. The day’s volume was boosted by trades in FBNH, Guaranty Trust Bank, Zenith Bank, FCMB and Fidelity Bank.
Access Bank and Aiico Insurance were the best-performing stocks, after gaining 9.92% and 9.59% respectively, closing at N6.65 and N0.80 per share on low price attraction and dividend expectation. On the flip side, Cutix and Learn Africa lost 10% each, closing at N1.40 and N0.90 respectively on selloffs and profit-taking

Market Outlook
We expect mixed intraday performance to continue, as trading remains dicey, as virtual trading continues, market players position ahead of Q1 2020 earnings reports and impacts of the stimulus package on the economy. Also, more companies are notifying the exchange and investors of their closed period for 2020 first-quarter earnings reports.
However, the high dividend yields continue to attract buying interests, while more audited corporate earnings hit the market going forward. This is despite the likely continuation of the selloffs, with investors buying to increase their positions in undervalued stocks ahead of dividend declaration. This is also against the backdrop of the fact that the capital wave in the financial market may persist in the midst of relatively low-interest rates in the money market, high inflation and unstable economic outlook for 2020.

Also, investors and traders are positioning in anticipation of the 2019 full-year earnings reports, amidst the changing sentiments in the hope of improved liquidity and positive economic indices which may reverse the current trend.
We see investors focusing on the upcoming full-year earnings season, targeting companies with strong potential to grow their dividend on the strength of their earnings capacity.

Again, the current undervalue state of the market offers investors opportunities to position for the short, medium and long-term, which is why investors should target fundamentally sound, and dividend-paying stocks for possible capital appreciation in the New Year.
This was noted in the 10 golden stocks and trading ideas for 2020, as discussed extensively during the Investdata 2020 Traders & Investors Summit held in Lagos.

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