Aftermath Of Failed Rally: Mixed Performance Ahead, Amidst Profit-taking, Low Liquidity

Market Update for August 27
Trading on the Nigerian Stock Exchange (NSE) remained bearish for the second consecutive day after a failed attempt at the rebound. Tuesday’s was yet another very volatile and mixed session that confirmed the failed bear rally as the key performance index, the NSE All-Share could not follow through on the fourth day, just as the intraday low has been undercut on an increased volume of trade.
Given that effect of the seemingly positive news of a new cabinet has been halted at the beginning of the week, investors are looking to the release of Nigeria’s Q2 GDP, a major macroeconomic data, sometime next week. The GDP data will, nonetheless, confirm what the nation’s stock market has been signaling- that all may not be well with the economy after all. Also, the month of August is gradually drawing to a close, just as fixed-income yields are on the rise, due to foreign investors offloading their positions, leading to the ongoing price drops in the fixed income market.
Many investors are treading cautiously at this time, given what they see in many developed economies, going by the slow growth seen in their recently released GDP data which is confirming the gloomy picture of the global economy. Recall that the Nigerian economy has been struggling long before now.
It true that the current market situation has created huge opportunities for discerning investors and traders that are thinking medium and long term, ahead of the Q3 earnings session in October, which takes the market into its last quarter for the year, as they reposition their portfolios. Often times, what differentiates successful trader from others is remaining the ability to stay objective, while keeping to time-tested trading/investing rules instead of trading your profit and loss.
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Meanwhile, the NSEASI opened for Tuesday’s trading on a gapped down which lasted till mid-afternoon on continued selloffs in high cap stocks, especially in the oil/gas sector that dragged the index to touch intraday lows of 27,475.64 basis points from a high of 27,691.83bps. It then retraced up to finish the day at 27,602.64bps, lower than its opening figure of 27,691.83bps.
Tuesday’s market technicals were negative and mixed, recording a higher traded volume than the previous day’s, as market breadth favoured the bears. Market sentiment was mixed as revealed by Investdata’s Daily Sentiment Report, showing ‘buy’ volume at 59% and a ‘sell’ position of 41% on total daily transaction volume index of 0.85.
The energy behind the day’s performance remained weak, despite inching up as Money Flow Index read 37.23 points, from the previous session’s 36.15bps, an indication that funds entered some stocks like MTNN and Zenith, reducing the day’s losing momentum. This was just as buying interest for dividend-paying stocks increased, even as stocks like Seplat Petroleum, Total Nigeria, International Brewery, Livestock Feeds, University Press and others hit a new 52-week low. It may be interesting to know why Seplat has suffered 10% fall each in two consecutive days.

Index and Market Cap
At the end of trading, the composite NSEASI lost 89.08bps, closing at 27,602.64bps, after opening at 27,691.85bps, representing a 0.32% drop, just as market capitalization closed N43.34bn lower at N13.43tr, from an opening value of N13.49tr, representing 0.32% depreciation.
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The session’s downturn was due to selloffs and profit booking in stocks like Dangote Cement, Guaranty Trust Bank, Seplat, Total Nigeria, UACN, FBNH, UBA, Ecobank Transnational Incorporated and International Brewery, among others. These declines impacted negatively on the NSE’s Year-to-Date loss, increasing it to 12.18%, just as YTD market capitalization gain dropped to N1.71tr or 15.02% from the year’s opening level of N11.72tr.

Bearish Sector Indices
All sectoral performance indices closed in red on Tuesday, except for the NSE Insurance index that notched 0.08%. The NSE Oil/Gas index led the decliners, after losing 5.80%, followed by the Banking index’s 1.64% slide, while Industrial Goods followed, shedding 0.99%. The Consumer Goods index stayed flat.
Market breadth remained negative as decliners outnumbered advancers in the ratio of 23:13; but market activities in volume and value traded were up by 15.31% and 94.11% respectively at 183.65m shares worth N4.50 billion, from the previous day’s 158.27m units valued at N2.32bn. The day’s volume was driven by trades in Transcorp Plc, Guaranty Trust Bank, Access Bank, MTNN and FBNH.
The best-performing stocks for the session were PZ and Courtville Business Solution, which gained 5.93% and 5% respectively to close at N6.25 and N0.21 per share on the expectation of their Q4 numbers and market forces. On the flip side, Seplat and Neimeth lost 9.82% and 9.62% respectively to close at N397.70 and N0.47 on selloffs also on the back of market forces.

Market Outlook
This mixed performance will continue in the midst of profit-taking at a time of prevailing low liquidity, oscillating oil price, even as Investdata sees the likelihood of a slowdown in Nigeria’s expected Q2 GDP data. Also speculation ahead of month-end window dressing, taking advantage of the seeming improvement in some other economic indices released recently, as well as corporate earnings showing the true position of Nigeria’s listed companies.
Meanwhile, long-term investors are reshuffling their portfolios in anticipation of interim earnings reports of dividend-paying companies.
Discerning investors should target value stocks considering the current low valuation as they position for dividend income and capital gains, especially as the market’s Price to Earnings ratio remains attractive at 5.45x, which is well below the 8.24x average of its peers and its 9.56x five-year average. The current situation has revealed the existence of value and the high upside potentials for a rally. But then, wait to confirm reversal before jumping into a new position.
Investors should also take into consideration the expected economic reforms as President Buhari has assigned portfolio to the ministers. Central Bank of Nigeria (CBN) had earlier rolled out plans to boost productivity and investment by instructing the banks to lend more to the private sector. This is aimed at reducing banks’ participation in government securities and lending more to the private sector to drive economic growth.
There is also the likely impact of portfolio repositioning for the last quarter of the year ahead of Q3 financials in the midst of analyzing Q2 numbers and unfolding political events.

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