Election Concerns Hinder NSE Indicators In April, As Investors Hope For Quick 2018 Budget Passage

Trading for the month of April, the first in second quarter of 2018 ended on Monday, with the composite All-Share index continuing its third consecutive month of decline after recording 17.9% return on investment in January, the highest in 15 years which demystified the market’s January effect.
The January rise followed high investor expectations of positive 2017 full year earnings season, boosted by the optimism that greeted Nigeria’s exit from a painful recession and the improving macro-economic indicators in the domestic and global economy. These were supported by rising commodity prices, improving nation reserves, relative stable exchange rate sustained by the Central Bank of Nigeria (CBN) interventions and a declining inflation rate.
In our opinion, the three months of decline recorded by the NSE between February and April is beyond profit taking, given that the strong market fundamentals and upbeat economic data failed to support a much-expected healthy stock price recovery. This therefore gives credence to the fact that investors are concerned about the political risk associated with the coming 2019 general elections, which is linked to the decision by investors and traders (mostly foreign) to stay on the fence. The decision has resulted also in the oscillating mood and sideways trending of the market in search of direction. The weak response to earnings surprises as at released dates, is evident of low liquidity in the market, especially that at April-end, Nigeria’s 2018 budget is still facing so much uncertainty, leaving the economy to run entirely on monetary stimulus.
Meanwhile, in the 20 trading sessions of April, the composite NSE index oscillated to close lower after recording 11 trading days of down market and nine sessions for up market for the period. The composite index NSEASI for the month of April shed 235.95 points to close at 41,268.56 from an opening figure of 41,504.51, representing 0.57% decline over the period.
The buying volume of total transactions for the month was 75%, while selling position was 25% to continue the previous months down market as volume index for the period was 1.17. Market capitalisation for the month lost N4.2bn to close marginally lower at N14.9tr, from an opening value of N14.99tr, representing 0.02% depreciation in value, with the market having a mixed sentiment in expectations of Q1 scorecards that eventually beat investors and analyst’s estimates. The month’s traded volume was down by 12.71% at 8.24bn shares from 9.44bn in the previous month.
The NSE All-Share index’s year-to-date returns position stood at 7.91%, just as market capitalisation adjusted up to N1.34bn, representing 9.84% gain YTD from the opening value.
Market breadth for April was negative as decliners outpaced advancers in the ratio of 57:31 to continue the bear transition, despite the fact that over 68% of quoted companies with December year-end released their first quarter earnings reports to the market. The earnings reports were nonetheless mixed, but mostly surpassed market expectations especially the banking and oil sectors, which helped the industries, including the financial service providers and others to emerge on the best performing stocks chart for April.
The sectoral performance chart below shows that Oil/Gas sector propelled the market the most in the period under review, gaining 4.92%, compared to the loss by the benchmark NSE All Share Index. It was followed by the NSE Consumers Goods, which rose by 2.74% to reflect improvement in the manufacturing sector and purchasing power of Nigerians; ahead of followed by the NSE Pension index, which moved 1.20% up.
This was attributed to higher dividend payment by the blue-chip companies- mostly banking, consumer and industrial stocks, amidst their low Price-To-Earnings attraction in the sector. Other indexes that closed green during the month were: NSE 30 Index and NSE Premium. On the flip side, the NSE Industrial goods led by 5.21%; followed by NSE Insurance, 3.57%; and NSE Banking 0.16%.

The month’s best performer was Oando, which is finding its true market value following the recently lifted technical suspension, its improved 2017 full-year and first quarter 2018 earnings reports, despite the non-declaration of dividend in the full year. Oando closed the month better by a significant 52.75% of its opening price; followed by Learn Africa, which chalked 39.18%; while Ecobank Transnational Incorporated grabbed 22.94%; and AIICO Insurance, 16.13%.
High and medium cap stocks dominated the top gainers for the month included: Nestle, 15.87%; Seplat, 15.02%; and Prestige Assurance, 13.33%; among others.

The top losers were led by Mutual Benefit Assurance, which lost 29.41%, linked to market forces and the new price policy, UACN Property shed 21.90%; Japual Oil declined by 18.64%; Unity Bank 18.03%; and Dangote Flour, 16.61% on the back of weak payout in 2017 full-year and flat first quarter numbers.

Where To Invest And Expectations For May, June
The global economy and market remain strong as the World Bank recently upgraded the world economic growth outlook despite mounting concern by the investing public about political risks and fear of a trade war which can easily destroy investments due to dwindling confidence.
Back home, the seeming economic recovery will continue in the new month as we expect more encouraging economic data and the eventual passage of the much awaited 2018 budget into law, after which investors expect implementation to complement the CBN’s effort at boosting productivity that will create employment and sustain recovery. Reasons for this are not far-fetched, given the relative peace and security that have since returned to the nation’s troubled Niger Delta region, resulting in oil production stability, all of which would impact the nation’s revenue positively in the coming months.
In May, we expect the release of April consumer price index (CPI) by the National Bureau of Statistics (NBS), with inflation dropping further; just as the CBN’s Purchasing Managers Index (PMI) improved slightly in April to 56.9%, indicating an expansion in the manufacturing sector for the 13th consecutive month, even while that of NOIPoll and the FBNQuest saw a marked fall from 59.4 to 51.0 in April (the first time both reports would reveal a divergence. The nation’s GDP is also expected this month and would confirm the true state of the economy.
As the Q1 earnings reporting season officially comes to close just as the month of April, company fundamentals have come out relatively stronger, leading to more positive numbers to kick start the 2018 financial year, while providing a guide for investors to know where to seek returns depending on their investment horizon, especially as the 2019 elections draws nearer with the Independent National Electoral Commission (INEC) scheduling political parties primaries for between August and October.
Traders and investors who understand the importance of combining fundaments and technical analysis in making investment decisions in the stock market should take this opportunity to position in some sectors for medium and short-term gains, especially the banking, Industrial, agribusiness and consumer goods after a carefully study of recent numbers made available to the market.

What to expect in May and June
• Release of few quarterly and full year earnings. Earnings from blue-chip companies may strengthen market fundamentals, if positive.
• Continuation of oscillating trend of equity prices as a result of repositioning of portfolio along the line of positive numbers and profit taking. Also due to fear of the coming elections, the second half of this year will be dominated by weaker sentiment.
• Market outlook for May is always dicey, in line with popular saying that traders always “sell in May and come back in October,” which necessarily depresses the market in May. In the Nigerian market, however, this theory has been defiled four time over the past six years when the market was up, contrary to the expected down market for the period. But with the better Q1 numbers than expected; the 2018 budget that would likely be approved by the National Assembly this month; the CBN’s readiness to sustain its intervention in the FX market; and with the nation’s external reserve still robust, there is a likelihood of improvement in liquidity; and business activity ahead of second half of the year.
• The sustained low valuation in the market may trigger high demand for stocks as electioneering campaign activities kick-off very soon. However, there is need to invest wisely, using bids, offers and volume when taking decisions as a trader.
• Managing risk and protecting capital at this point is very important, so you will be able to determine when to buy or sell, by watching the stocks and the market, using technical analysis. Look for investdata daily sentiment timing report
• Let numbers released by the companies guide your decision and time to stay in that position.
• Full-year earnings reports of March year-end companies will start hitting the market this month until June.
As the market phase is changing, it is time to combine fundamentals and technical tools to take decision by knowing the support and resistant levels to reposition or exit any position. You must know the cycle it, or particular stocks therein are to successfully manage your trading and investment risk. For stocks that should be on your shopping list to buy in these seasonal changes as the year unfolds, sign up to INVESTDATA BUY AND SELL signal setup by calling 08032055467.
Get your home study pack of the INVEST 2018 Traders & Investors Summit and ride with the current recovery on Nigeria’s stock market and economy, thereby ensuring that you invest and trade with knowledge. You can also access stocks analysed in the home study pack of the Chart Summit held on February 24, 2018, including the 15 stock-picks for 2018 are available now to guide your positioning as trading for the year.
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Ambrose Omordion
CRO|Investdata Consulting Ltd

Tel: 08028164085, 08032055467