Hope For NGSE On Speculators’ Return For Year-end Trading Activities, Positioning

September Market Roundup 2019
Trading on the Nigerian Stock Exchange officially closed for the month of September and, indeed, the third quarter on Monday recording a marginal decline at the close of that day, just as the period under consideration recorded mixed performance.
On the strength of events that occurred between the end of August and Monday, September 30, 2019, equities seemed to have fared better, as composite index resisted further decline, due to gradual improvements in investors’ buying interests. Recall that the market had been on a downtrend since the beginning of the year, despite various attempts at a rebound in February and May, before giving up on strong bearish sentiments, but hampered by the prevailing weak economic and market fundamentals.
During the month, the NSE’s benchmark All-Share index closed marginally positive on the strength of value gains by some high cap stocks and blue-chip companies, which were enough to halt three consecutive months of panic selloffs and profit-taking after many stocks hit their 52-week, five and even 10-year lows in August.
The low confidence and liquidity levels in the system, coupled with mixed macro-economic indices were due to the slow implementation of the capital component of Nigeria’s 2019 budget, which analysts and investors had expected will drive economic activities. It is noteworthy that Nigeria’s economy had continued to struggle over the last five years at the average national growth of below 1%. Specifically, Nigeria’s GDP has grown at an average of 0.71% over the last 13 quarters (READ MORE), while the equity market growth has averaged 12.15% in all of 22 years, according to Investdata Research, notwithstanding the zigzag performance of the nation’s economy all through its 59-year history since independence in 1960.
The average of loss of 2.21% recorded on the exchange for third quarter despite the marginal gain of 0.38% in September, was attributed to post-election uncertainties that continue to trail the economy, as well as the weak Q2 corporate earnings, lack of economic direction, with government delaying the reconstitution of the Federal Executive Council, among others. There was also the effect of the gloomy global economic outlook, despite which Nigeria’s stock market formed strong support level in August and the month under review. The marginal rebound in September, may also not be unconnected with the low price attraction of most stocks, ahead of their year-end score-card, a situation that has gradually triggered demand for blue-chip stocks now selling at a considerable discount to Book Value.
Looking at the just concluded Q3 performance and year-to-date, the market remained in negative position at 7.80% and 12.09% respectively, maintaining a bearish posture that started in 2018. This may likely continue, with the benchmark index closing flat, or suffering a margin loss, with market fundamentals expected to change in the last quarter of the year.
The recent rate cut in developed economies and markets may likely redirect the flow of funds to an emerging market like Nigeria, even as implementation of the 60% minimum Loans-Deposits ratio by the deposit money banks, implementation of the 2019 capital budget and end of year activities could give the market the needed liquidity boost. This is expected to impact equity prices because the market indices in Q4 have always risen by 1.8% on average over the past 22 years.
It is noteworthy also that although various sectors of the market closed positive for the month of September, they remained red for Q3 and year-to-date. Also, despite the seemingly improved performance in September, the NSE Industrial Goods Index recorded a marginal decline in the aftermath of the loss of value by Dangote Cement.
During the month, the composite index NSEASI gained 104.75 basis points to close at 27,630.56bps, from an opening figure of 27,525.81bps representing a 0.38% growth after it touching an intra-month high of 27,984.08bps. The index also touched a low of 26.895.56bps, and remained below the 28,000 psychological level in the period, after breaking down various times during the trading sessions of the period.
Market capitalization for the month also closed higher at N13.45tr from an opening value of N13.39tr representing a 0.45% value gain.
The mixed performance recorded in September resulted from cautious trading which dominated selling positions as investors took profit to meet growing needs, while mixed economic data released within the month by the Central Bank of Nigeria (CBN) and National Bureau of Statistics (NBS) did not significantly impact the market, coming with fragile growth. This was especially the case with the August inflation that only managed to decline by 0.06 points to 11.02% from July 11.08%; as well as the Q2 GDP figure which came in positive at 1.94%; while the Purchasing Managers’ Index (PMI) expanded slowly at 57.7 points in September from 57.9 points in August.
The rate of volatility for the period was high on low volume traded, reflecting the cautious trading and mixed sentiment that took over the market in the period, leading to 12 straight trading sessions of down markets and 9 sessions of bull-run. Traded volume for the month was up by 13.98% to 4.81bn shares from 4.22bn shares in the preceding month.
Market breadth for the month was positive with advancers outnumbering decliners in the ratio of 41:29 to short-live a three-month bear transition with the declining magnitude on loses, as stock prices adjusted up slightly in the last three trading sessions of the month on apparent window dressing by fund managers. This was an apparent market reaction to the decision of the CBN’s MPC meeting to hold all rates, against most analysts’ expectations, a decision the committee hinged on the need to observe unfolding developments in the global economic space. Market players are also on the look-out for a direction from the recently constituted Economic Advisory Council (EAC), as it swings into action.
The buying position of total transactions for the month was 68%, while the selling position was 32%, reversing the selling pressure in August, while the volume index for the period was 0.66.
Topping the sectoral index movement table for the period was the NSE Oil/Gas, which rose by 20.63%, thereby outperforming the overall market’s All Share index that closed high at 0.38%, followed by the 8.56% gain by NSE Insurance; even as the NSE Consumer goods and NSE Banking could only rise by 7.85% and 7.10% respectively.

Best Performing Stocks
All classes of stocks were active in the month under review as low and medium cap equities dominated the list of best performing stocks, led by Cornerstone Insurance, which gained all of 100% of its opening price for the period, galloping on the strength of market sentiments and planned right issue after the sale of its head office building. UACN followed, appreciating by 50%; while Continental Reinsurance rose 42.76%, after proposing to by buyout minority shareholders; just as Seplat chalked 39.55%. Other gainers on the table for the month included: Okomu Oil 32.41%; Total Nigeria 29.5%; International Brewery, 29.23%; Dangote Sugar, 21.11%; and NEM Insurance, 21.05%; among others.

Worst Performing Stocks
On the other hand, the worst performing stocks for the period was Champion Breweries, which lost 24.84%, as a result of poor earnings and selloffs; followed by Sterling Bank’s 20% loss, due to profit booking; even as Neimeth Pharm shed 20%; and Guinness Nigeria, 17.87% on the back of selloff as investors reacted to its weak numbers.

Looking at the opening graph above, you would notice that the NSEASI on monthly basis is side trending as revealed by the index action to form a bearish channel where the market closed within the channel trying to form strong support and resist breakdown. Also, the lower line of the channel, which has become the support, signals an imminent reversal, creating a new entering point for discerning investors. The candlestick formation for the month of August and September supports reversal, depending on market forces as we cross over to the last quarter of 2019, for which trading kicks off on Wednesday with high hopes that speculators will return to play the market ahead of year-end activities.