Market Update for Week Ended January 19 and Outlook for Jan 22-26

Nigeria’s equity prices and market indexes continued to gallop for the third straight trading week of the year despite profit booking spikes and cautious trading over imminent correction ahead of the 2017 earnings reporting season and dividend declaration that will kick off in earnest any moment in February. This is just as Q3 earnings reports for March year-end accounts are underway with the first month of 2018 is gradually drawing down. The state of these Q3 numbers will determine if the 45,000 psychological line resistance breakout already tested will be sustained or trigger pullbacks being anticipated from different quarters. It is expected to confirm the health status of the bullish market. Despite this anticipated correction, the market has continued to ride on strong wave 3 or 5 extension wave, depending on how you are reading the waves with index and volume intact and looking up and with no diversion yet as at end of last week’s trading session.
There is also the continued decline in inflation rate for the 11th consecutive months on the strength of a sustained intervention in the investors and exporters’ window of the inter-bank market by the Central Bank of Nigeria (CBN). This situation that has boosted activity in Nigeria’s manufacturing sector as shown by the steady growth in the monthly Purchasing Managers Index (PMI) over the past 10 months.
The relatively low valuation of stocks in the market currently, despite the ongoing rally has been due to the strong quarterly numbers which leaves the NSE’s average Price-to-Earnings ratio at below 16.58x. This means the Nigerian market remains attractive at a time many of its peers across Africa and the develop economies have P/E ratios above 20x of their earnings. The S&P 500 P/E ratio spiked to 26.17x last week, which is its peak since the 2007-2008 financial crisis.
Technicals for the period under review was strong and positive with high volatility on rallying prices and volume, revealing strong momentum ahead of earnings season expectations irrespective of profit taking and the fear of whether the ongoing rally would be sustained and for how long. The weekly buying pressure stood at 98% and 2% of selling volume, while the volume index for the period was 2.78 of total transaction.
As mentioned earlier, the market index broke out its psychological line of 45,000 point after touching a new 52-week high of 45,162.64 from the low of 42,262.82 basis points on a positive market breadth that reflected an increasing demand for stocks.
The benchmark index gained 2,193.93 points to close the week at 42,898.90 points, from an opening figure of 42,898.90 points, representing a 5.11% growth on a huge volume, which was marginally higher than previous week’s. These transactions were driven by activities especially in the financial services and conglomerate sectors. Similarly, market capitalisation for the period closed higher at N16.15tr from an opening value of N14.92tr, representing a 5.11% value appreciation in in investors’ portfolios.
Second-tier banking stocks topped the week’s advancers’ table because there was an uptrend with high volatility, rising price and volume occurred as low cap stocks were rallying. Profit taking at this point is inevitable as prices had rallied high to the level that the expected payout by many companies in the expected 2017 full-year earnings may not support some of their prices and good dividend yield relative to current prices.
However, when compared to other investment windows, especially the money market, equities remain attractive due to the shorter time advantage of playing dividend income strategy during the earnings season.
The bullish sentiment continued in the week under consideration, as the market indices were hitting new highs due to traders and investors positioning for the expected numbers, with huge funds driving low, medium and high cap stocks higher, thereby impacting positively on the year-to-date return of the NSE All-Share index to 17.91%. Market capitalisation for the period grew by N2.84tr, representing a 18.70% gain from the year’s opening value.
Market breadth for the week was also positive with the advancers’ outnumbering decliners in the ratio of 40:32 on a huge volume of trades to keep three weeks bull market running.
Stock markets around the world were mixed over the past week, with key influencers like Central banks, oil, crypto-mania, and inflation, besides geopolitical risks including North Korea, which continued its threats which has started shaping the global economy outlook in 2018.
In the U.S, there is a gradual rise in inflation, amidst tax cuts, high equity valuations and concerns over government shutdown. In addition to the recent hike in interest rates, the expected correction since the equity price continue to attain new all-time highs, which is inevitable as international funds managers focus on emerging and Fortier markets for higher returns despite the risk associated with such returns.
In Europe, stock markets hit their highest levels since 2008 amid growing confidence in corporate earnings and the strength of the global economy. In Asia, Japan upgraded its assessment of the economy for the first time in seven months amid a rise in consumer spending. Its central bank hopes that the increase in spending could translate to a pickup in inflation this year.
Back home, the NSE All Share Index opened the week on a positive note, gaining 0.51% to reverse previous trading session’s down market, which was sustained on the second trading day with a 2.17% notch. This uptrend was consolidated at the third trading day with a 1.89% gain, before sliding down marginally on Thursday when the index shed 0.09% as the market came under selling pressure, rebounding on Friday, closing 0.55% northward. Cumulatively, the week ended with the NSE chalking a total of 5.11%, despite profit taking and panic selling.
The NSE index and all sectoral indices closed green for the period, except for the NSE Consumer Goods which fell 1.31% down, while the NSE AseM was once again flat, just as the financial sector topped the index performance chart with 8.50% in just one week.
Market activities for the week, in terms of volume and value were down by 0.20% and 33.57% respectively to 5.01bn shares worth N45.82bn from the previous week’s 5.02bn units valued at N68.97bn.
At the end of trading for the third week of the year, Skye Bank and Unity Bank were the best performing stocks, chalking 53.57% and 48.10% respectively to close at N1.29 and N1.22 per share, due to the bullish momentum that is driving both the good and bad. It is not unknown that Skye Bank has not released its 2016 financials, talk more of the 2017 quarterly status reports. Investors should therefore be wary of such investment, while Unity Bank is not better, particularly given that since its share reconstruction which moved its price to N5 before it bowed to market forces soon after and fell to 0.50 kobo per share, especially also given the fact that it has not paid any dividend all this while, despite reducing shares outstanding.
The worst performing equity for the period were Consumer goods due to massive profit taking that made them dominate the top decliners table, led by National Salt which lost 13.64% to close at N19.00 on profit taking; followed by AG Leventis, 12% to close at N0.66, as short traders in the stock quickly took profit.
Market Outlook
In this new week, the last for the month, expect volatility and profit taking to continue in the midst of actual Q3 numbers hitting the market with surprise or disappointing reports. Also, Monetary Policy Committee (MPC) will not hold its first regular meeting for 2018, which ought to have opened on Monday, January 22, 2018, owing to the fact that the committee has become depleted after the Senate refused to screen and approve nominations for their replacements. The MPC meeting therefore becomes the first casualty of the months old face-off between the Executive and Senate over refusal by the Presidency to remove Ibrahim Magu, executive chairman of the Economic & Financial Crimes Commission (EFCC), preferring to retain him in acting capacity, after his nomination had twice been rejected by the upper legislative chamber.
However, we would like to reiterate that investors should go for equities with intrinsic value, especially during this season when dividend payment is approaching.
We advise investors to allow numbers guide their decisions while repositioning for the rest of the year’s trading activities, especially now that stock prices remain volatile amidst improving company, economic and market fundamentals.
It is time to combine fundamentals and technical tools to take decision by knowing the support and resistant level to reposition or exit any position. Market is in phases know the cycles in order to manage your trading and investing risk. For stocks that should be on your shopping list to buy in this seasonality changes as the year winds down, sign up to INVESTDATA BUY AND SELL signal setup by calling 08032055467.
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