Volatility Ahead, As Investors Review Q3 Financials, Amidst Month-End Rebalancing

Volatility Ahead, As Investors Review Q3 Financials, Amidst Month-End Rebalancing


Post Views: 416 Market Update for the week ended October 26 and Outlook for October 29-Nov 2 Positive market reaction to third quarter earnings as a r...

Investors Gain 3.67% On NGSE In February, Despite Thursday’s N194.5bn Loss
NSE Drops 25.82% From Jan-High, As 2019 Concerns Drags Investor Sentiments Lower
Short-term Mixed Outlook On NGSE, Amidst Election Fever, Expected Q4 GDP, Inflation Data

Market Update for the week ended October 26 and Outlook for October 29-Nov 2

Positive market reaction to third quarter earnings as a result of low prices of equities last week supported the third consecutive week of uptrend, not minding that most of these numbers failed to live up to investors’ expectations. Research by Investdata shows that over 70% of the Q3 filings were mixed after a top-down analysis of the numbers.
Over a half of them reported weak, or even flat revenue, while some reported negative and disappointing numbers that caused their share prices to slip lower. The results have also, however painted a true and fair view of Nigeria’s gloomy economic situation, even before the economic data is released by the National Bureau of Statistics (NBS).
Figures from the stocks of financial service providers, especially the banks were fairer, due to rising oil price in the international market that boosted loan recovery and reduced exposure to the oil sector. Such write backs automatically booster the profit levels, given that such loans had earlier been provisioned for. The reduction in impairment charges over the period lifted bottom-lines of most banks.
The low level of sales and lack of penetration into new markets by manufacturing sector, as seen through their financials for the period under review, is also an indication of saturation in existing markets and/or the weak purchasing power among Nigerians who now are probably consuming less or foregoing most of these consumer items, due to their low disposable income.
Global markets also recorded mixed performance last week, as U.S stocks moved sharply lower after third quarter earnings failed to meet investors’ forecast, despite the seeming strong economic data and the low forward Price/Earnings ratio at below 16x, which is lower than its five-year average.
Back home, over 30 listed companies filed their quarterly scorecards on the Nigerian Stock Exchange (NSE), as volatility persisted resulting in mixed performance after opening for the period on a positive note on Monday when it gained 0.34%, which was sustained on Tuesday when the index gained 0.57%, before suffering a sharp pull-back by midweek, losing 2.37%. There was mild 0.44% recovery on Thursday, which was improved upon with Friday’s 1.10% notch on mixed sentiment and increased traded volume driven by earnings season.
Market technicals for the week were positive but mixed as volume traded was high amidst negative market breadth and strong buying sentiment as revealed by Investdata’s weekly Sentiment Report, showing a buy volume of 62% and sell position of 38%. The volume index for the period total transactions was 1.06.
The energy behind the weekly market performance was strengthened on increasing number of earnings released and renewed buying interest. The money flow index increased to38.68bps, from previous week 28.93bps, an indication that funds entered some stocks in the midst of low liquidity and earnings season at its peak.

Equity Indicators Last Week
At the end of the week trading, the NSEASI gained 65.64bps to close at 32,907.33bps, after opening at 32,841.69bps, representing a 0.20% growth. Similarly, market capitalization closed at N12.03tr, from an opening value of N11.99tr, representing a 0.20% value gain.

Low cap stocks dominated the week top advancers table as blue chip stocks resisted decline on the seeming third quarter earnings season.
Meanwhile, the NSEASI’s year-to-date negative returns reduced to 14.12%, just as market capitalization improved to N1.58tr negative returns, or 11.79% below the year’s opening value.

Mixed Sectors Indices
Sectorial performance indexes were largely bullish, except for the NSE Consumer goods and Industrial Goods that closed lower due to profit taking. Market breadth was negative as decliners outnumbered advancers in ratio of 35:26 to continue the up market.
The weekly market activities were up in volume and value by 5.32% and 0.73% respectively to 1.45bn shares worth N15.26bn from the previous week 1.38bn units valued at N15.15bn. Transactions were boosted by trading in financial services and conglomerates stocks, while Diamond Bank and Law Union, were the best performing stocks, gaining 20% and 16% respectively at N1.44 and N0.58 per share, on low price attractions, while Mcnichols and Lafarge Africa lost 30.51% and 13.10% each to close at N0.41 and N18.25 on market forces and reactions to their negative earnings reports.

Market Outlook
We expect mixed performance with short-term profit taking underway as more companies present their numbers, at a time several of the results have showcased mixed performance. Volatility could however continue, if the numbers beat market and analysts forecast.
The ongoing Q3 earnings reports would assist investors and fund managers rebalance their portfolios, while watching the political space and analysing the actual numbers that will give insights into expectations for Q3 GDP and full year company earnings power. These are likely to drive prices north, or south, while determining market direction before or after Presidential Election.
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,
We advise investors to allow numbers guide their decisions while repositioning in any stock, especially now that stock prices remain volatile amidst mixed company, economic and market fundamental.

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