Post Views: 150 Market Update for August 6, 2018 Volatility seems to have become the new normal on the Nigerian stock market, especially now that the ...
Market Update for August 6, 2018
Volatility seems to have become the new normal on the Nigerian stock market, especially now that the political parties are preparing for shadow elections ahead of the all-important 2018 polls. This has remained a key concern to investors, whether domestic or foreign, retail or otherwise, especially as it relates to the possibility of a leadership change which accounts for much of the uncertainty in pre-election years.
This, it is believed, can and does spike market volatility and businesses, especially when it is seen that a new party may take power and come with new thinking that needs to be studied in relation to the investment climate.
In such cases, portfolio investors begin to reduce their risk and exposures, at least until they are able to gauge precisely where the new government would tilt, which can take some time in the early stage of that administration.
In the United States, with a long history of democracy, a link has long been established showing that the pre- and post-election periods typically have opposite effects on investors’ optimism.
Presidential Election Cycle Theory
Research has also established a theory called the “Presidential election cycle theory,” which states that the financial markets exhibit weakening trends in the year before a presidential election, just as a UBS report concluded that the S&P 500 moves from high to low and returns to high again for one complete cycle.
Markets have been known also to react positively to a more business-friendly party, just as there is more market volatility because of the uncertainty of who will be elected than when the outcome is fairly certain.
At the prevailing market situation, knowing the right value and growing companies to buy now or after election is very important, the criteria for choosing quality companies with excellent earnings were discussed at the July 28, 2018 workshop hosted by Investdata Consulting. The home study packs are ready now. For your Study Pack, call or send YES to the phone numbers below.
The first trading session of the week was volatile and down marginally to consolidate the previous position, just as market technicals were negative and mixed, even as volume traded was lower than the recent market average. This was in the midst of negative market breadth and mixed sentiments as revealed by Investdata’s Daily Sentiment Report, showing a ‘buy’ position of 36% and ‘sell’ volume at 64%. Volume index was 0.63 of the day’s total transactions.
The momentum behind the day’s market performance was weak, regardless of the low liquidity, as reflected in the money flow index at 31.48points, marginally up from previous day’s 31.30points, indicating that funds inflow to the market are stable, even if low.
Index and Market Cap
The benchmark index on Monday shed 20.25 basis points, closing at 36,479.42bps, after opening at 36,499.67bps, representing a 0.06% decline, while market capitalisation was down by N7.39bn to close at N13.32tr from an opening value of N13.32tr, which represented 0.06% value loss.
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Monday’s downturn was as a result of marginal losses suffered by medium and high cap stocks like: Dangote Cement, NB, Guaranty Trust Bank, Cadbury, FBNH, Okomu Oil, Flourmills, Honeywell, Dangote Flour and Transcorp. This impacted negatively on the NSE’s Year-to-Date return, to deepen the negative position to 4.61%, just as market capitalization decline within the period stood at N254.4bn, and 1.85% below the year’s opening value.
Bullish Sector Performance
Sectorial performance for the session were largely bullish, except for the NSE Consumer Goods that closed in the red. Market breadth was negative as the number of decliners outnumbered advancers in the ratio of 25:21, to continue it two-day pullback.
Market activities were down in volume and value by 31.57% and 52.27% respectively to 182.29m worth N2.03bn, as against the previous day’s 266.1m units valued at N4.26bn.
Transactions for the day were boosted by trading in financial services and healthcare stocks: UBA, UACN, Access Bank, Regency Assurance and Union Diagnostics that witnessed increased trading to top the activity chart.
Consolidated Hallmark Insurance and Niger Insurance were the best performing stocks for the day, topping the advancers’ table, after gaining 10% each, to close at N0.33 each as a result of market forces and sentiments for low priced stocks as their numbers are looking up gradually.
On the flip side, Ikeja Hotel and Aluminum Extrusion were the worst, losing 9.9% and 9.78% respectively to close at N2.82 and N8.30 on profit taking and market forces.
We expect the pullback of yesterday to extend as the whole world looks out for the outcome of the emergency meeting called by Nigeria’s Senate today (news break on Tuesday morning however said the Nigeria’s National Assembly was invaded by mobile Policemen and armed masked operatives of the Department of State Service ostensibly to prevent the planned seating).
Meanwhile, investors continue to interpret the recent Q2 earnings reports so as to rebalance their portfolios and watch the political space and analyse at the actual coming numbers released so far as a basis for determining the market and economy’s direction going forward. More disappointing reports will drive the market further down, or inspire a reversal if the numbers beat expectation.
Also important, is the outcome of the shadow elections by political parties taking place in the month of August. Investors should review their positions in line with investment goals, strength of the company numbers and act as events unfold in the global and domestic environment.
However, we would like to reiterate our advice that investors should go for equities with intrinsic value, especially during this season were Q2 interim dividend payment are expected in the market arena very soon.
We advise investors to allow numbers guide their decisions while repositioning in any stock, especially now that stock prices remain volatile amidst improving company, economic and market fundamental.
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