Bargain Hunting, Speculative Trading In Under-Priced Blue-chips, May Support Rebound On NGSE

Market Update for The Week ended October 4 and Outlook for 7-11
The Nigerian stock market recorded four trading sessions of losses over the past week, which was laced with volatility as it extended three consecutive weeks of downtrend despite the seeming attempt by the NSE composite All-Share index to resist further decline. This however failed, owing to the lack of a positive stimulus needed to drive demand for stocks as policy statements emerging from the government remains a source of concern among investors and keen watchers of the economy, amidst fears that stagflation signals are already in the horizon.
This is an indication that investors and traders on the exchange are still nervous, especially with continued selloffs in blue-chips and large-cap stocks as government moves to boost public revenue by hiking tax rates despite the evident slowdown in economic growth. This move will negatively impact company profits, as well as the purchasing power of Nigerians due to the multiplicity of taxes.
Already, while the government’s proposed increase of Value Added Tax (VAT) rate from 5% to 7.5% is still struggling to get the approval of the National Assembly, it is already proposing a reintroduction of toll gates on some high ways in the country, a situation that will see the cost of transportation and movement of goods and services balloon further. In the coming days too, the government seeks to impose a communication services tax, a situation capable of reducing consumption, at a time the nation’s monetary policy authorities are pushing to trigger productivity. This is seen in the recent hike in Loan-Deposit Ratio first to 60% by September 30 and 65% by December 31, 2019, which is aimed at forcing bank lending to the real sector (READ MORE). These and other efforts could become wasted unless there is a rethink, which is while the fiscal and monetary authorities must collaborate to avoid such policy clashes.
Investdata expects that the newly constituted Economic Advisory Council, led by Prof. Adedoyin Salami and peopled with erudite personalities in their individual rights should interface between both the Federal Government and the Central Bank of Nigeria (CBN) for the good of Nigeria’s economy. We would expect that they immediately come up with a workable roadmap of economic growth and development that will ensure both authorities complement each other, just like the various government agencies to deliver a prosperous and progressive economy.
The failing volume and value of international trade among developed economies continue to threaten the global economic outlook as the lingering trade war between the U.S and China has now been extended to the European Union, with the U.S planning to impose tariffs of 10% and 25% on some products like aircraft and wines. When this is added to the weak manufacturing sector data, there is more than glaring evidence that all is not well with the U.S economy, as the ISM index has remained below 50 points for two consecutive months, indicating that a recession could well be on the underway.
With this contraction or slow growth in the global manufacturing sector, the central banks have now positioned themselves to absorb potential shocks and economic weakness from an indefinite trade war. Expectations are, therefore, building for another move by the Feds at their October 30 meeting for another chance of a quarter-point cut, even as the probability of another rate cut has jumped to 88%, following this week’s ISM data.

Movement Of NSEASI
It was a free fall for equities on the Nigerian Stock Exchange (NSE) during the period under review, following which the benchmark NSEASI started the week’s trading on a negative pedestal, halting previous session’s gains, beginning with the 0.16% loss on Monday to close the quarter. The negative sentiment continued when trading began at the midweek after the public holiday on Tuesday as the nation celebrated its 59th independence anniversary, shedding 1.09%. The loss followed selloffs in high cap stocks like MTN Nigeria and Nestle, among others. The market’s key performance indices maintained a downtrend on Thursday and Friday when the index lost 0.84% and 0.36% respectively on the back of a massive selloff that brought the week’s cumulative loss to 2.48%, as the index closed at 26,987.45 basis points, from 27,675.04bps it opened. The drop is coming one after the NSEASI lost 0.09%.
The volatility and sell down during periods were evident on the advancers table which was dominated by low cap stocks after highly capitalized and blue-chip stocks suffered huge losses. The expected Q3 numbers are likely to start hitting the market from the midmonth, according to the historical pattern of the companies (READ MORE).
Market breadth for the week closed negative with decliners outnumbering advancers in the ratio of 22:15.
The energy behind the week’s performance remained weak despite inched up as shown in the 31.99bp Money Flow Index, compared with 29.39bps in the previous week, indicating that funds entered some stocks due to the mixed sentiment. This was just as some traders and investors took advantage of the low prices of fundamentally sound stocks to position in expectation of the earnings season. Investdata sentiment report for the period revealed mixed sentiment as ‘Buy’ volume was at 37%, while ‘sell’ position was 63% on a transaction volume index of 0.46.
During the week, Infinity Trust Mortgage Bank and Interlinked Technologies released their Q3 and full-year earnings report respectively, for the period ended September 31, and June 30, 2019. The numbers were mixed with the bank posting impressive earnings, while the ICT company results came below expectations.
Also, during the week, many companies released their closed period and board meeting dates in preparation of making their quarterly results available to the investing public. Beta Glass informed the investing community of it capacity expansion investment of $30m (READ MORE). Cornerstone insurance also notified the market of the sale of its head office building.

NSEASI Weekly Time Frame
The chart above shows that the NSE index tested a new support level before retracing to close lower on negative sentiment to slow down the expected reversal, signaling the likely continuation of a downtrend as MACD signal line cross to bearish zone on a daily and weekly time frame. At this point, it is the interplay of market forces in the new week and outcome of the Federal Executive Council (FEC) meeting on Wednesday. We expect bargain hunting to gather momentum in the weeks ahead of Q3 earnings reporting season.
Though the NSEASI is still trading below the 20-Day Moving Average on a weekly time frame, the index action has formed a rectangular chart pattern that equally supports a reversal or continuation of the trend, just as the Relative Strength Index reads 34.71. However, money flow is reading 31.99 points on the weekly chart.

Mixed Sectoral Indices
The sectorial performance indexes were largely bearish as three of the five sectors closed lower led by the NSE Consumer Goods losing 4.92%, while Banking and Oil & Gas sectors followed respectively after shedding 3.94% and 2.25%. Meanwhile, the NSE Insurance and Industrial Goods Indices closed 5.71% and 0.14% higher respectively.
Market activities for the week in volume and value were down by 40% and 44.94% respectively, as investors traded 660.56m shares worth N9.19bn, compared to previous week’s 1.09bn units valued at N16.69bn. This volume was majorly driven by Guaranty Trust Bank, Access Bank and FBN Holding.
The best-performing stocks for the week were Continental Reinsurance and Law Union & Rock Insurance, which led the advancers’ table with 20.11% and 12.82% gains respectively, closing at N2.27 and N0.44 per share on the proposed buyout of minority shareholders, as well as the recapitalization exercise in the industry, ahead of their Q3 numbers. On the flip side, Fidson Healthcare and Ecobank Transnational Incorporated lost 18.89% and 14.61% respectively, closing at N3.65 and N7.60, on selloffs and profit-taking.

Market Outlook
We expect a mixed performance in the new week, amid the gloomy global outlook, lack of positive catalyst in the domestic macroeconomy, at a time fund, tends to by flowing towards fixed income instruments. However, discerning investors should take advantage of the current low stocks valuation to position for the earnings season, and inequities that have strong potentials to rebound with the general market. It is noteworthy that the market is seemingly resisting further decline while awaiting a positive statement and/or policy direction to move northward.
We would, however, not overlook the possibility of a bargain-hunting motive supporting positive performance, especially with many fundamentally sound stocks remaining under-priced. With dividend yield of major blue-chips continuing to look attractive in recent weeks, we expect speculative trading to shape the market’s direction, despite the seeming negative outlook.

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Ambrose Omordion
CRO|Investdata Consulting Ltd
Tel: 08028164085, 08032055467