The basic indicators of the Nigerian Stock Exchange (NSE) declined further in August as the political environment remains charged ahead of next year’s general elections, in the midst of dwindling macro-economic indices. This has in turn weakened investors’ confidence and appetite for stocks, preferring safety of their capital, a situation that triggered another around of panic sell-offs leading to a new 52-week low after many equities had made four-year highs within the last one year.
The magnitude of losses suffered in August was heavy, with 16 trading sessions of down market and up market of just five sessions, leading to a pull-back that resulted in a further drop in the market’s year-to-date loss to 8.88%, and a 22.14% decline from the year’s peak.
The downturn recorded in the period under review was earlier predicted in our July round up as a continuation of trend ahead of the elections, as we await the economic roadmap of aspirants for various political offices to deliver the nation from insecurity, poverty and lack of infrastructure.
In the seven straight months of bear-run so far, the market broke down the 35,000 basis points psychological line, touching a low of 34,312 before retracing up to close at 34,848.45bps. During the month also, the NSE All-Share index lost 2,169.33 points from its 37,017.78bps opening figure, representing a 5.86% decline, just as market capitalization for the period closed at N12.72tr from an opening value of N13.41tr, representing 5.15% value loss to deepen investors’ red position.
The NSE index touched a low of 34,312bps, which wiped out the earlier gains after attaining a four-year high in the first of month of the year. The mixed Q2 numbers from the listed companies did not influence the market positively as the earnings and interim dividend paid by some of the banks in their Q2 audited numbers, following which sell-offs persisted to end the month lower amidst a negative market breadth on the last trading day of the month that signaled continuation trend as pullback persisted.
The volatility seen so far in the second half of the year was reflection of negative factors against the market, amidst capital flight as foreign investors exit, resulting in the dwindling foreign reserve which has dropped by $2bn since May 10, 2018 (READ). This situation played up in the Q2 GDP slowdown to 1.5% from 1.99% in the previous quarter as reported by National Bureau of Statistics (NBS) recently (READ). Although the latest August Purchasing Managers’ Index (PMI) released by the CBN on Friday showed marginal expansion, as manufacturing and non-manufacturing index stood at 57.1% and 58% respectively. This implies expansion from 56.8% and 57.7% respectively reported in previous month.
Sectors To Invest In Sept 2018
The global economic recovery is currently under threat by the continued tension from trade and currency war that needs to be checked immediately before international investors confidence are eroded and capital flow hampered, added to political risks and unfriendly international policies emanating from some developed countries, which are currently slowing growth. There is also expected weaker dollar that will support world economy as prices of other commodities are looking up at the international market especially crude oil, despite the recent oscillation to trade above $70per barrel.
Another factor is the unstable fiscal and monetary policies around the world, with stimulus gradually being withdrawn; a situation that had triggered inflation in US, UK and Germany, while other parts of the Europe zone and Japan remained relatively unchanged.
Global economy growth outlook remains unpredictable, despite the positive economic data and impressive corporate earnings as political and economic uncertainties continue to threaten businesses and investments, made worse by the body language and utterances of world leaders.
Back home, there are factors such as the continued decline in inflation rate to 11.21%, decline in foreign reserves and mixed macro-economic indices that had induce the ongoing free fall of equities ahead of political parties primary elections and high risk associated with politics that had affected investors confidence so far. However, the 2018 budget is yet to impact the system. We note also that regardless of the fluctuating price of crude oil, the relative peace in the Niger Delta region resulting in stable oil output have also not translated to economic growth. This may not be unconnected with the style of disbursement and secrecy in the government’s budgeting process.
PMI for the month of August was slightly up and is likely to continue the trend in September, if the government does the needful to trigger recovery in the nation’s manufacturing sector, improving on the Q2 numbers from the sector that came below market expectation, confirming that the industry is still struggling.
We expect investors and analysts to interpret the recent scorecards from first-tier banking stocks and other sectors to reposition their portfolios ahead of the Q3 earnings season in October. Also, this being the last month in Q3, we expect the market to keep oscillating, just as economic policy makers should form a force that will drive recovery which would have positive influence on the market.
The continued downturn has supported the low market valuation, making many stocks undervalued on the strength of their intrinsic values that should guide investors as they seek to invest profitably for the rest of the year despite the general poll.
Traders and investors who understand the dynamics of the market and the importance of combining fundamental and technical analysis in making investment decisions in the stock market should utilize the opportunity this pullback to position in some sectors for short, medium and long-term gains.
Sectors that should attract attention for juicy returns this month include: Insurance, conglomerates, Aviation services providers, banking, agribusiness, building material, consumer goods, oil and gas after a careful study of the recent price pattern and fundamental data available in the market ahead of Q3 earnings season in October. This is a very important season in the stock market cycle in taking final investment decisions for the year as numbers expected would give insight into what their full-year figures would look like.
What To Expect In Sept, October
• The earnings reports scheduled for release this month will not make much impact on the share prices, as June year-end account has a 90-day timeframe for submission of their audited results (which is this month).
• The oscillating trend of equity prices as a result of repositioning of portfolio along the line of positive numbers and profit taking ahead of October earnings season and party primaries.
• Market outlook for the new month remains mixed as less quarterly and full year financials are expected. But expect mixed sentiment and weak momentum as the market expects the economy to recover, amidst electoral spending, just as the low interest rate strengthens the market. This will however depend also on how well the government implements the 2018 budget faithfully.
• The relative low Price/Earnings ratio in the market may further attract demand for stocks, but you must invest wisely, using bids, offers and volume when taking decisions as a trader.
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