Expect Speculative Trading In Major Stocks With Strong Intrinsic Value, Ahead Of 2019 General Polls

Market Update for the week ended December 14 and Outlook for Dec. 17-21
It was another week of bearish activities on the Nigerian Stock Exchange (NSE) as selloffs continued, consolidating five consecutive weeks of down market with the benchmark performance index trading below the 31,000 mark and 20-Day Moving Average on high volume of transaction. This was driven by bargain hunting in medium and high cap stocks that had hit their one-year low with strong earnings power capable of supporting dividend payout at the end of the 2018 financial year.
The all awaited Santa Claus rally seems to be slipping away, given that the period under review closed lower, despite Friday’s marginal rebound on a high transaction volume in the midst of mixed sentiment and positive market breath that signaled the possibility of rally in the last full week before the Christmas festivities. It is however dependent on market forces as fund managers and market players position for year end. Also the move by some listed companies to close the year higher may likely impact prices positively.
Expectation at any time is a factor that drives investment decision and action. The volatile week saw a 194.03 basis points decline in the composite NSE All-Share index. Investors should be used to these gyrations by now since they have remained the hallmark of 2018.
As we noted earlier, there have already been at least five weeks of 4.73% or more draw-downs on the NSE index this year, the worst in the history of pre-election years since 1998.
The fact is that the NSE All Share Index and other sectorial indexes are still resisting decline, especially after some of the massive selloffs seen so far this year. But then, draw-downs are a part of the game, although most investors that are under-30 don’t have a lot of experience with them. Seasoned investors and traders have learned to moderate their expectations and build their portfolios to endure all kinds of market situation. It takes discipline and a lot of learning to do that well.
However, participants at the invest 2019 summit which held on December 8, 2018, were given 10 golden stocks expected to rally in 2019, with which to reposition their portfolio, no matter the outcome of next February’s Presidential election. Having unreasonable expectations is the first step to setting yourself up for disappointment or worse.
In the just concluded Traders & Investors summit, it was discovered that the average retail investor expects stocks to return more than 10% a year on average. Pension funds, which are far more conservative, expect 7.5% average annual returns. All these were however dashed in 2018 as market set to close in red.
However, the nation’s headline inflation for the month of November climbed 0.02 points higher to 11.28% higher than 11.26% in October according to a report by the National Bureau of Statistics (NBS), pressured by the growth in food inflation, which rose 2bps to 13.3% year-on-year.

Meanwhile, third quarter GDP released during the week revealed that the economy expanded by 1.8% YoY, higher than Q2 growth of 1.5% YoY. The growth recorded was driven by improvement in the non-oil sector (+2.3%) as the oil sector posted its second consecutive contraction in 2018 by 1.3% YoY. It’s unfortunate that this improvement did not reflect on the real sector, especially the manufacturing sector where Q3 corporate earnings were below market expectation as sales revenue and profitability level decline.
Back to the market, its index closed positive in two of the five trading days as sell pressure continues to rattle the local bourse, as the losing momentum increased on a high volume traded to decline by 0.63% against 0.02% recorded in the previous week.
The high selling pressure persisted in the week under review, as Oil/Gas andConsumer goods sectors recorded huge losses that reflected in the negative market technicals, on high volume traded in the midst of negative market breadth and strong negative sentiment. This was revealed by Investdata’s weekly Sentiment Report, showing a sell volume of 81% and buy position of 19%. The volume index of total transactions within the week was 0.94.
The force behind the week’s performance was weak and flat as low and medium cap stocks recorded gains which reflected on the money flow index at 24.42bps, from 24.69bps in previous week, an indication that funds are moving in and out of some stocks despite the prevailing low liquidity.

Equity Indicators Last Week
At the end of the week, the NSE ASI fell by 194.03 basis points to close at 30,672.79 basis points, after opening at 30,866.82bps, hitting a high of 31,213.77bps, from low of 30,542.86bps on high volume. Similarly, market capitalization dropped by N26.57bn closed at N11.2tr, from N11.27tr, representing 0.58% depreciation in value.

Stocks selling below 50kobo and other Penny equities dominated the advancers’ table for the period as bargain hunters took advantage of the prevailing low price to accumulate position as many stocks hit one year low to become more attractive ahead of Santa Claus and year-end rally.
Meanwhile, the NSEASI’s year-to-date negative returns dipped to 19.80%, just as market capitalization dropped to N2.65tr, or 19.48% below the year’s opening value.

Mixed Sectors Indices
The sectorial performance for the period was largely bullish, except for the NSE Oil/Gas and Consumer Goods indexes that were in red. Market breadth was negative, with decliners’outnumbering advancers in the ratio of 37:34, to continue the previous week’s bearish market.
Market activities in terms of volume and value were up by 5.41% and 31.90%% respectively to 1.17bn shares worth N14.76bn, compared to previous week’s 1.11bn units valued at N11.19bn, boosted by trading in financial service, healthcare and consumer goods.
Forte Oil and John Holt emerged best performing stock for the week, after topping the advancers’ with their 33.89% and 20% gains respectively to close at N24.10 and N0.48 per share on low-price attraction and market forces. On the other hand, 11 Plc and Conoil lost 10.41% and 10% respectively, closing at N156.60 and N20.25 on profit taking and market forces.

Market Outlook
We expect the overall market sentiment to remain mixed with rekindled buying interest from banking, and oil & gas stocks, amidst the rebound in oil price in the international market that continues to trigger investor sentiments.
However, we expect speculative trading on major stocks with strong potential upside to shape the breadth of market performance this week, while watching the political space, since Q3 numbers have given insights into what the expected Q3 GDP and full year company earnings power will be.
With the presidential campaign kicking off, Nigerians are expecting new strategies and roadmap to address the economy, especially the rising poverty level, human capital development, decayed infrastructure and education with time frames for delivery. These campaigns are likely to drive prices north, or south, while determining market direction before or after the Presidential election.
Investors should review their positions in line with their investment goals, strength of the company numbers and act as events unfold in the global and domestic environment.
However, we would like to reiterate 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 fundamentals

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Ambrose Omordion
CRO|Investdata Consulting Ltd

Tel: 08028164085, 08032055467