Bearish Sentiments Persists On NGSE, As Investors Await Major Fiscal Policy Boosts

Market Update for June 26
The bear run and volatility on the Nigerian Stock Exchange (NSE) persisted at the midweek as its benchmark All-Share index extended its three consecutive sessions of negative outing on a low volume indicative of a level of support test for reversal or breakdown of the 29,600 mark.
The early warning about the economy sliding into yet another round of recession and the five-year blueprint by released Monday by Godwin Emefiele, Governor of the Central Bank of Nigeria (CBN) as part of helping the nation stave off the expected depression while propelling productivity activities that will support the possible double-digit growth is a welcome development. But then, serious action must be taken by the fiscal authorities to support the CBN’s efforts immediately, if only to avoid the mistake that led to 2016 recession. The telltale signs are already steering us in the face as a nation, the stock market index is down, Purchasing Manager Index has been mixed for the months of April, May, and June, while the inflation rate is on the upswing. Given the recent warning by Alhaji Muhammad Sanusi, immediate past CBN Governor, now Emir of Kano, Nigeria is on the verge of bankruptcy, except things change for good quickly and that change, we believe, will first reverberate in the stock market.
The recapitalization plan for Nigerian banks has come at the right time, as it will further strengthen them to play their mediatory roles as the engine room of economic development. We note that 15 years after the last exercise which positioned Nigerian banks among the world’s top 1000, a lot has happened and many have been impaired directly or indirectly by various factors, including the five-yearly Naira devaluation. This planned recapitalization of the banks is expected to boost banking stocks and the general market performance, given that it is the most active sector in the market. But unlike the first exercise, we believe that the envisaged recapitalization will not be as intense as the previous one, given that less than 10 banks, in all, actually need to boost their capital base, including the four with negative retained earnings as recently reported by Investdata News (READ MORE). Besides these, there are three others in need of urgent fresh capital injection, while seven others may seek to just solidify their capital base for bigger ticket transaction and to withstand any form of troubled times in the future. We also note that the enlarged shares in issue of these banks may be a problem unless they embark on share buy-backs and/or reconstruction exercises ahead of the recapitalization since time table for the exercise is not out yet out.
Meanwhile, Wednesday’s trading session started on the downside, but oscillated between midday and afternoon, after touching intraday low of 29,588.54bps from its high of 29,697.43bps, before closing lower at 29,609.00bps, which is a major strong support level, that will usher in lower lows, if a breakdown follows.
Midweek’s market technicals were negative and mixed as volume traded was higher than previous day’s, while negative market breadth and high selling pressure persisted, as revealed by Investdata’s Daily Sentiment Report showing a ‘sell’ volume of 81% and ‘buy’ position was 19% of the total daily transaction volume index of 0.87.
The energy behind the day’s performance was seriously weak as Money Flow Index showed a new three-year at 5.50points, from previous day’s 5.58bps, indicating funds had left the market and some stocks in the midst of prevailing low liquidity.

Index and Market Cap
The All-Share index at the end of trading shed 59.68bps, closing at 29,609.00bps, after opening at 29.668.68bps, representing a 0.20% drop, just as market capitalization lost N26.29bn to close at N13.05tr, from its opening value of N13.07tr, which also represented 0.20% value loss.
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The day’s downturn was driven by selloffs in high cap stocks like Nestle, MNTN, CCNN, FBNH and FCMB, which impacted negatively on the Year-to-Date loss at 5.80%, just as market capitalisation gain also dropped to N1.08tr, or 11.29%, from the year’s opening level of N11.72tr.

Mixed Sector Indices
The sectoral performance indices were largely bullish except for the NSE Industrial and consumer goods which closed lower at 1.88% and 0.35% respectively, while the NSE Oil/Gas index led the advancers, after gaining 0.91%. It was followed by Insurance with 0.77%, next was Banking with 0.28%.
Market breadth was negative as decliners outweighed advancers in the ratio of 19:17, just as market activities were mixed as volume traded was up 56% to 394.06m shares, compared to the previous day’s 253.39m units, while value fell by 21% to N3.27bn from Tuesday’s N4.12bn. This volume was driven by transactions in financial services and consumer goods stocks like Wema Bank, Guaranty Trust Bank, Unilever, FBNH and Flour Mills.
Courtville Business and Consolidated Hallmark Insurance were the best-performing stocks, after topping the advancers’ with gains of 9.52% and 9.09% respectively to close at N0.23 and N0.24 per share, on market forces. On the flip side, Chams and Beta Glass, lost 10% and 9.97% respectively to close at N0.27 and N66.35 per share on market forces and profit taking.

Market Outlook
We expect mixed performance as the end of quarter window dressing by fund managers and portfolio repositioning and balancing for month end and the Q2 earnings reporting season to reverse the trend. As bargain hunters are likely to hit the market any moment from now, while discerning investors are taking advantage of low valuation to position ahead of March year-end numbers and second half interim dividend stocks.
They may also take into consideration the expected economic reforms as government announces its much-awaited new cabinet, just as plans by the Central Bank of Nigeria (CBN) to reduce banks’ participation in government securities is expected to boost private sector lending to drive economic activities and investment.
There is also the likely end of month trading account balancing in the midst of portfolio repositioning in expectation of interim dividend in Q2 numbers, especially banking stocks.

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