Bargain Hunting Intensifies, Amidst Volatility, Profit Taking For Q3 Earnings Season

Market Update for October 10, 2018

Trading on the Nigeria Stock Exchange on Wednesday continued in its bearish and volatile mode, resulting in two sessions of back-to-back losses on a highly negative sentiment and low traded volume. The index closed lower, arising from selloffs in highly capitalized stocks amidst persistent profit taking ahead of the Q3 earnings season which is likely to change the prevailing direction. That will however depend on if such numbers beat market expectations.
The continued decline in the market after various attempts at recovery towards the end of September is evidence that the Nigerian bourse is in search of a trigger in the form of positive earning to influence share prices.
Mid-week’s NSE index opened with a gap up, running up to resistance, pulled back, formed a wedge in the midday and early afternoon, after touching intraday low of 32,382.58 basis points, from a high of 32,466.23bps. It then reached the session’s lows with barely minutes to the end of session.
The ongoing portfolio rebalancing in the face of profit taking and selloffs make value stocks even more attractive as we go into the Q3 earnings reporting season, which has, so far, recorded mixed performance so far in the year. The Price to Earnings ratio for stocks remains low, in a high/accommodative interest rate environment, as the economy remains weak, with high and rising inflation.
Midweek’s market technicals were negative and mixed, on a high selling pressure, positive market breadth amidst a low traded volume as revealed by Investdata’s Daily Sentiment Report, showing a ‘sell’ volume of100%. The volume index for the day’s total transactions was 0.65.
The momentum behind the day’s market performance was strengthened despite the continued profit taking in the consumer goods and Oil/Gas sectors, as reflected in the money flow index at 49.26bps, from the previous day’s 45.47bps, indicating that fundsare enteringsome stocks to in the midst of low market liquidity.

Index and Market Cap

The NSE’s composite index at the end midweek, shed 35.12bps to close at 32,382.60bps, after opening at 32,417.76bps, representing a 0.11% decline, just as market capitalization fell N12.82bn to N11.82tr, from an opening value of N11.83tr, representing a 0.11% value depreciation also.
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The day’s downturn was attributed to price depreciation in: Nigerian Breweries, Guaranty Trust Bank, UACN, FBNH, 11 Plc, Transcorp Hotel, Honeywell and Japual Oil, which impacted on the Year-to-Date negative returns, as it contract to 15.36%, while market capitalization lost N1.82tr, representing 13.18% drop, from the opening value.
Mixed Sector Performance
The sectorial performance for the session was largely bullish, except for NSE Consumer goods and Oil/Gas that were down. Market breadth was positive asadvancers outpaced decliners in the ratio of21:18, to continued two-daybearish transition.
Market activities were mixed as volume dropped by 61.62% from 349.53m units, to 134.57m shares, while value was up by 32.36% to N1.94bn, from previous day’s N1.46bn.
Transactions were boosted by trading in financial services and tech stocks like: FCMB, Fidelity Bank, FBNH, Chams and Guaranty Trust Bank.
CAP and Mutual Benefits Assurance were the best performing stocks, as they topped the advancers’ table with 10%and 7.64% gains respectively, closing at N33.00 and N0.28 per share, due to market forces. On the flip side, McNichol’s and Transcorp Hotel lost 9.72% and 9.63% respectively, closing at N0.65 and N6.10 each on market profit taking.

Market Outlook
Again, as more companies announce their closed period ahead of actual results, expect increased bargain hunting in the midst of volatility and profit taking ahead for the Q3 earnings reporting season that kicks off soon. Also, the September inflation data is being expected. Investdata projects that it could be in the region of 11.49%, despite the political risk, with electioneering activities beginning.
Investors are looking forward to Q3 earnings reports so as to rebalance their portfolios and watch the political space, while analysing the actual numbers that will give insights into expectations for Q3 GDP and full year companies earnings power that are likely to drive prices and determine the market before or after February 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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