November: NGSE Index Rebounds On Strong Regulatory Push, Fundamentals

November: NGSE Index Rebounds On Strong Regulatory Push, Fundamentals


Post Views: 123 Market Roundup for November The Nigerian equity market during the month of November resisted further decline on the strength of the im...

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Market Roundup for November

The Nigerian equity market during the month of November resisted further decline on the strength of the improved buying interest by market players, driven by the crash in money market rates to a three-year low, just as the sliding yield in fixed income instruments. At the same time, banks began to implement the directive of the Central Bank of Nigeria (CBN) further raising Loan to Deposits Ratio (LDR) from 60% to 65% at the end of December 31, 2019, expected to avail more credits to the private sector and stimulate economic productivity that drive national growth. Godwin Emefiele, the CBN Governor, had on Friday expressed satisfaction with the increased gross credit to the private sector by N1.16tr between May and October 2019 (READ MORE). This is expected to jump further up with the implementation of the 65% LDR.

The mixed and seeming positive macro-economic indices which reflected the nation’s improved recovery continued to impact basic indices of the Nigerian Stock Exchange (NSE), further confirming that the economy is still on the path of recovery and growth, despite being slower than expected, when compared with the rate of population growth.

It was however strong enough to influence equity prices positively such that the market closed the month under consideration higher, halting previous month’s bear-run while building on the mild Q3 performance as shown in the various corporate score-cards. The rebound was enhanced by the prevailing low valuations and end-of-year positioning that boosted demand for stocks. Growth during the period under review was equally helped by the capital wave and undervalued state of the market.

We believe that inflows to the MSCI Frontier Market Index within the period and going forward will impact the market positively.

Manufacturing activities in the current year continues to improve due to the gradual increase in the purchasing power of Nigerians and the increasing productivity as reflected in the monthly Purchasing Managers’ Index over the last four months. According to data from the Central Bank of Nigeria, PMI rose from 58.20 points in October to 59.30 points November; just as Q3 GDP came out stronger at 2.28% as against Q2 economic growth of 1.94% (READ MORE).

More specifically, the first three quarterly results of companies listed on the exchange generally reveal weak and mixed performances in earnings and profit among players in the banking, insurance, consumer and industrial goods sectors, most of which were below expectations. They reflected the weak purchasing power, even while looking seemingly attractive, due to the prevailing low stock prices. This is because most of these companies have piles of unsold stocks on their shelves and warehouses, due to the low consumption level, high cost of production and taxes militating against the national output.

Another important factor is the rise in headline inflation over the past three months, while that of November is likely to continue in the northward direction.  Despite these mix factors, company earnings as at Q3 will impact price movement and support dividend payout.

In the 20 trading session of the month under review, the market was up in 11 and down in nine, thereby short-living the October down market and reducing year-to-date loss position to 14.09%, which is attributed to factors listed above. The low cost of equity assets and circular flow of funds have made the NSE attractive, due to the high upside potential and margin of safety, given that many stocks remain underpriced when their market prices are compared to the book value.

Meanwhile, the benchmark NSE All-Share Index in the month gained a total of 642.88 basis points, closing at 27,002.15bps after touching a high of 27,109.29bps and low of 26,143.12bps within the period, compared to the 26,359.27bps at which it opened. The closing point represented a 2.44% growth during the month on a strong buy position that impacted stock prices to reverse the negative sentiment and breakout the bearish channel to signal recovery.

‘Buy’ pressure of the total transactions for the month was 89%, just as selling position stood at 11% to trigger a bull-run in the last quarter of the year, while volume index for the period stood 0.96. Market capitalization for the period gained N204bn to close higher at N13.03tr, from N12.83tr, representing a 1.56% value gain. Market cap recorded lower gain due to the delisting of Dangote Flour Mills during the month under review.

Transactions in volume for the month was up by 41.58% as stockbrokers crossed 6.98bn shares, worth N4.56tr; as against the 4.93bn units valued at N84.3bn recorded in the preceding month.

Market breadth for the month was positive, with the advancers outnumbering decliners in the ratio of 76:28 to trigger a bull transition, irrespective of the mixed sentiments and profit-taking during the period.

Sectoral indexes performance chart followed the path of the composite index, except for the NSE Premium index that closed on to the south. The bar chart below shows that the NSE Banking drove the market up the most during the month, gaining 15.26%, given that most of the banking stocks are dividend-paying stocks. It was followed by the pension index, which soared by 7.77%. Both indices, therefore, outperformed the composite NSE All-Share Index during the period, ahead of the NSE Consumer Goods index which climbed 4.87% up to reflect the improving demand for stocks in that sector due to the low price attraction and expected impact of the low cost of funds. The NSE Oil/Gas and Industry indices grew by 0.49% and 0.35% respectively, revealing investors’ interest in blue-chip stocks, amidst the oscillating sentiments and attractive low Price-To-Earnings ratio

The NSE Insurance closed flat for the month, thereby creating opportunities for investors and traders to take position, due to the kobo prices in the sector and the minimal funds needed to move their prices.

Best And Worst Performing

The best-performing stocks for the period under view were dominated by kobo stock- Neimeth Pharmaceuticals, which rallied on the strength of low prices and market sentiment, gaining 87.18% of its opening price for the month. It was followed by another kobo stock- Cornerstone Insurance, which appreciated by 75.55%; Chams notched 59.09%; while Jaiz Bank climbed 46.67%; just as Law Union Insurance and Dangote Sugar jumped 44.44% and 33.33% up respectively.

The worst performing stocks for the period was Unilever Nigeria, which shed 39.70% of its opening price for the month, amidst unimpressive earning and market forces; followed by International Brewery, which lost 25.40%, owing to the loss as a result of the loss account, despite proposing primary market activities. The share price of Total Nigeria fell by lost 9.98%; C&I Leasing closed 9.89% lower on selloffs, regardless of its share reconstruction and proposed right issue; just as MRS Oil dropped 9.738% on the back of market forces.

The month’s index action remained in the bearish channel and below the 20 and 50-Day moving average, despite the improved trade volume, which reflected the increasing demand for stock as market and economic fundamentals continue on the path of growth in line with the strong momentum despite the mixed sentiments and strong volatility. Given the improving economic data and current trading pattern, and ahead of the Santa Claus and year-end rally in preparation for full-year earnings reporting season in Q1 2020, market technicals remain positive. This is likely to remain so in the new month as seasonal changes and the impact of crude oil prices remain at play in the market.