Expect Bargain Hunting To Intensify On NGSE, As Year-end Portfolio Reshuffling Kicks Off

Market Update for The Week ended October 25 and Outlook for 28-Nov 1
The nation’s equity market continued its decline over the past week, seemingly unimpressed by the influx of mixed corporate earnings during the period, even as the new pricing methodology introduced October 11 by the Nigerian Stock Exchange (NSE) slowed down the losing momentum. It is therefore arguable whether the intention of the new pricing methodology (ensuring relative stability by reducing price fluctuation of highly capitalized stocks with much influence on the benchmark index) has been a success.
The mixed and mild reaction to these quarterly scorecards by market players and even companies that posted surprising numbers show the low confidence and liquidity prevailing in the market and economy. Investors may also have started considering the implications of the Central Bank of Nigeria (CBN) directive minimum Loan-Deposit Ratio, as well as the restriction of individuals and corporate bodies from investing in OMO and Treasury Bills, in a move expected to enhance the flow of funds to the real sector, while boosting productivity.
It is apparent that the foreign portfolio investors are standing on the sidelines to see understand the Federal Government’s economic reforms and blueprint needed to stimulate growth. It is expected that advice from the Adedoyin Salami-led committee will help boost the economy and redirect it to the path of recovery and prosperity.

Movement Of NSEASI
Meanwhile, the market’s bear-run intensified, extending to six consecutive weeks of decline, as the All-Share Index opened trading on a negative note, losing 0.22%, a trend that continued on Tuesday, following sell down in some banking stocks. The negative trend was however halted at the midweek, as one of the high cap stocks appreciated, following the benchmark index gained 0.12%. This gain was however short-lived, as the bear resurfaced on Thursday and Friday, when the NSE’s benchmark index lost 0.15% and 0.3% respectively, on selloffs, bringing the week’s cumulative loss to 0.38%. The key performance NSE All-Share index closed at 26,348.73 basis points from 26,448.62bps, after testing a 30-month new low at 26,113.99bps on a high volume.
The bear dominance and weak price movement of highly capitalized stocks were very much evident on the gainers table as low cap stocks recorded the best of performance as many high cap stocks remain unchanged, while some blue-chip companies continued to witness mixed direction, despite impressive Q3 numbers posted in the ongoing earnings season which officially ends on Thursday, October 31. Market breadth for the week closed negative with decliners outnumbering advancers in the ratio of 33:18.
The momentum behind the week’s performance remained weak, despite inching up as shown in the 35.20bp Money Flow Index, compared with 32.54bps in the previous week, indicating that some stocks had inflows, as portfolio adjustment had started on the strength of numbers released so far despite the weak and down market.
The trading pattern during the period shows that discerning traders and investors are taking advantage of the new low prices of fundamentally sound stocks to position ahead of seasonal movement and end-of-year window dressing by fund managers. Also, the Investdata sentiment report for the week revealed mixed sentiment with ‘buy’ volume at 70%, while the ‘sell’ position was 30% on a transaction volume index of 0.90.
During the week, more than 28 companies released quarterly financials for the period ended September 30, 2019, while Okomu Oil and Airtel Africa announced interim dividends of N2.00 and $0.03 respectively.

NSEASI Weekly Time Frame
The chart above shows that the NSE index made a new 30-month low on negative sentiment and low liquidity, irrespective of financials submitted, and the positive macroeconomic indices, but on the seemingly improved buying interest as revealed by sentiment reports and candlestick formation, signals a possible reversal in the nearest time.
MACD is mixed, looking bearish on a weekly time frame while turning bullish on a daily timeframe. At this point, it is the interplay of market forces that will determine the direction, especially as more earnings reports hit the market in this new week. We expect bargain hunting to gather momentum during the week, as a reshuffling of portfolios kicks off for year-end.
This is even as the NSEASI continues to trade below the 20-Day Moving Average on a daily and weekly timeframe; the index action has broken down the major support level of 26,489.42bps in a bearish channel, just as the Relative Strength Index reads 31.37 at the oversold region. However, money flow is reading 35.20 points on the weekly chart.

Bearish Sectoral Indices
All the sectorial indexes closed red, with the NSE Industrial Goods index leading the decliners after dropping by 1.51%, followed by the NSE Insurance, which slipped 1.47%; followed by the NSE Consumer Goods, Banking and Oil/Gas that shed 0.60%, 0.40%, and 0.30% respectively.
Transactions in terms of volume and value for the week were mixed as volume traded was up by 127.77% to 2.05bn shares from the previous week 896.61m units, just as value fell by 2.6% to N16.13bn, compared to previous week’s N16.56bn. The week’s volume was boosted by transactions in Omoluabi Mortgage Bank, Zenith Bank, and Transcorp
The best-performing stocks during the week were Cornerstone Insurance and Consolidated Hallmark, as they topped the advancers’ table with 18.75% and 12.12% gains respectively, closing at N0.38 and N0.37 per share on industry recapitalization and market forces ahead of their Q3 numbers. On the flip side, Guinness Nigeria and NEM Insurance lost 18.74% and 13.04% respectively, closing at N23.85 and N2.00, on a negative earnings position hit 15 years low and profit-taking.

Market Outlook
The mixed performance is expected to continue in the new week, given the improved buying interest as revealed by the sentiment report for the week, while more earnings reports hit the market expected to trigger speculative trading, at a time of low prices of fundamentally sound stocks ahead of month-end. At the moment, all eyes are on the domestic economy as macroeconomic indicators look seemingly positive ahead of policy statements and economic reforms. In the meantime, funds are flowing towards fixed income instruments.
Discerning investors, nonetheless, should take advantage of the current low stocks valuation to position for medium to long term. It is noteworthy that the market is selling at a discount to give high upside potential.
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 a 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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CRO|Investdata Consulting Ltd

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