Mixed Performance Ahead, Amidst Profit-Taking, Reactions To Fitch Downgrade, Capital Wave

Market Update for The Week ended December 20 and Outlook for Dec 23

The sectoral indexes of the Nigerian Stock Exchange resisted further decline on Friday of the last full trading week of the year, as day traders dominated the market, driving the up and down pattern, changing the much anticipated Santa Claus rally, closing the period marginally lower before the holidays. At the same time, it signaled a higher possibility of the year 2019 winding down in negative territory, thereby confirming another two consecutive years of decline.

The chart pattern and candlestick formation at the end of last week’s trading supported an imminent reversal that needs confirmation, with only two trading sessions before the Christmas holidays on Wednesday and Thursday. Also, investors are interpreting fundamentals issues in the market, as well as forces that will guide further positioning, one of which is the recent macroeconomic data released by the National Bureau of Statistics (NBS), showing that the inflation rate rose by 11.85% in November from 11.61% in October, the highest level in 20 months. This has therefore pushed the real rate of return from the fixed income market farther into negative.

The 2020 budget was signed into law by President Muhammadu Buhari on Tuesday and is expected to run concurrently with that of 2019. The early passage and assent to the budget have, however, effectively changed the nation’s budget cycle to January-December for the first time in the 20 years of democracy, a plus for the market and the economy at large.

We, therefore, expect that the government will hit the ground running in the areas of implementation and disbursement of funds, a situation expected to change a whole lot of dynamics next year.

But, the continued downgrade of the nation’s economic outlook by an international rating agency- Fitch, again on the back of the increasing vulnerability from the current macro policy setting in Nigeria is of grave concern for foreign and local investors. Flashpoints have been identified to include the complex regulatory measures of the Central Bank of Nigeria, the country’s rising debt profile, the low fiscal revenue and uncertainties around governance.  The confusing and even non-complementary nature of monetary and fiscal policies has not helped matters, despite the increasing liquidity to the real sector arising from the hike in Loan to Deposit Ratio of banks in the country.

The global stock markets closed green in the period under consideration, following recovery at the last two trading days of the week after the U.S and China signed phase one of an agreement to end the prolonged trade war, thereby giving a positive prospect for global trade in 2020.  This trade agreement reached by the two biggest economies made the world’s markets resilient, despite news of the impeachment of U.S President Donald Trump during the week.

The positive global economic outlook for 2020 is becoming clear on the strength of the trade deal reached, just as the successful election in the UK, with Brexit issue remaining here or there.  The changing trading patterns and news of the Fitch downgrade of Nigeria’s economic outlook made the NGSE index move the opposite direction to those of its counterpart that closed positive during the period.

Movement Of NSEASI

Back home, the NSE had a high momentum with buying interest and profit-taking on strong mixed sentiments that dominated the week’s transactions as traders moved prices of stocks up in the morning while selling pressure at the closing minutes, keeping the market oscillating for the period. This movement reflected on the high traded volume during the period, extending the three weeks of bear-run in a bear recovery market.

The benchmark index opened the week positive, gaining 0.60% as traders and investors positioned for the Santa Claus and year-end rally. This was however short-lived on Tuesday as the NSE Index lost 0.13% on profit-taking and reactions to the 11.85% November inflation rate released that morning. This trend was reversed at the midweek, with marginal 0.02% gain on a positive breadth, which it gave up Thursday and Friday on profit-taking and reaction to another downgrade of the economic outlook, as the index lost 0.30% and 0.22% respectively, bringing the week’s total loss to 0.04%, which was better when compared to the 1.11% loss recorded in the preceding week.

The index touched intra-week high of 27,006.97 basis points, from a low of 26,408.32bps on a strong demand for financial and consumer goods stocks that had suffered losses over the period, to close at 26,526.35bps from an opening figure of 26,536.21bps. Also, market capitalization lost 0.03% to close the week at N12.8tr.

Low and medium cap stocks led the top gainer’s table for the week as highly capitalized stocks remained unchanged, with day traders taking profits in low priced stocks that rallied recently.

More stocks closed higher, following positive sentiment for equity assets as a capital wave in the local financial market continued, while market breadth closed positive, and advancers outnumbered decliners in the ratio of 33:25. The momentum behind last week’s trade inched as shown in the Money Flow Index that read 52.63bps, compared to 52.10bps in the previous week, indicating that funds entered some stocks, despite the fact that the market closed lower.

The week’s trading pattern showed that accumulation is ongoing ahead of 2019 full-year earnings reporting season expected in the 2020 Q1 as anticipated markup in dividend-paying stocks with high yields and strong earnings capacity is underway.  Also, Investdata Sentiment Report for the week revealed a strong selling pressure, with ‘buy’ volume at 20%, and ‘sell’ position of 80%, on a transaction volume index of 1.04.

NSEASI Weekly Time Frame                                                              

The high momentum behind the current trading pattern of the NSE Index suggests a recovery in a bearish channel as revealed by the chart above, however, a reversal of this trend is a function of market forces. It will also depend on players’ interpretation of macroeconomics indices and predicted negative outlook of the economy even when it seems things are gradually looking up in the system. The daily and weekly candlestick patterns signal short-term reversal, being the Christmas week with short trading sessions ahead of year-end window dressing by fund managers and quoted companies.

On a weekly time frame, MACD has remained bullish as the composite NSE index sustained up and down movement that signal the possibility of recovery as demand for stocks continues to look up in the midst of profit-taking.

The NSEASI, on a weekly and daily time frame, is trading below 20 and 50-Day Moving Average as it resisted decline on above-average traded volume. The Relative Strength Index read 35.95, indicating relative strength, despite being in the oversold region. However, money flow is reading 52.63 points and looking up on the weekly chart.

Mixed Sectoral Indices

The sectorial performance indexes for the week were largely bullish, except for the NSE Oil/Gas and Industrial Goods that closed lower by 0.68% and 0.49% respectively, while the NSE Consumer goods Index led the advancers, after gaining 1.31%, followed by the NSE Insurance with 1.04%, and next was NSE Banking that was up 0.78%.

Transactions in terms of volume and value for the week rose by 32.69%% and 5.95% respectively, after traders crossed 1.38bn shares worth N15.5bn, as against the previous week’s 1.04bn units valued at N14.63bn. Volume was driven mainly by trades in Access Bank, Union Diagnostic and Zenith Bank.

AG Leventis and Chams were the best-performing stocks, as topping the advancers’ chart, after gaining 28.21% and 20% respectively, to close at N0.50 and N0.36 per share on the core investor buy-off price of 0.59 kobo and low price attractive. On the flip side, Cornerstone Insurance and Uacn Property lost 36.36% and 16% respectively, closing at N0.42 and N0.84, on profit-taking and negative sentiment.

Market Outlook

Being the week of Christmas, we expect mixed performance to persist, on profit-taking, reaction to the Fitch rating and capital wave and hope that fund managers would extend their position in high dividend yield stocks with sound fundamentals. This is also based on the seemingly positive outlook for the domestic economy, despite what the rating agencies are saying, ahead of policy statements and structural economic reforms.

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 and therefore offers 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 underpriced. 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 mixed outlook.

Once again, we appreciate all that made Invest 2020 Traders and Investors Summit a success. The home study pack is available. To grab your pack, Send Yes or Stock to 08028164085, 08032055467, 08111811223 now.

Ambrose Omordion

CRO|Investdata Consulting Ltd





Tel: 08028164085, 08032055467